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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NUCLEUS, INC
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
NUCLEUS, INC.
3650 Austin Bluffs Parkway--Suite 138
Colorado Springs, Colorado 80918
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Nucleus, Inc. formerly known as American General Ventures, Inc. (for ease of
reference hereinafter referred to as "AGV") to be held on April 15, 1999, at
10:00 a.m., local time, at the Hotel Monaco, 225 North Wabash Avenue, Chicago,
Illinois.
At the Special Meeting you will be asked to consider and vote upon the
following:
(a) approval and adoption of an Agreement and Plan of Merger which would
merge Nucleus Holding Corporation ("Nucleus") with and into AGV (the
"Merger");
(b) the election of five (5) directors of AGV.
In addition, I will be pleased to report on the affairs of AGV and a
discussion period will be provided for questions and comments of general
interest to stockholders.
In the Merger, the sole Nucleus stockholder, CapitalOne Holdings Inc., an
Illinois corporation, will receive 5,307.109 Shares of AGV's Common Stock for
each share of Nucleus Common Stock, or an aggregate of 5,307,109 shares of
AGV's Common Stock.
The Merger represents a unique opportunity for the stockholders of AGV to
participate in what your Board of Directors believes will be the enhanced
value of the combined technology, expertise and commercial potential of the
companies.
The Proxy Statement, which you are urged to read carefully, provides
important information about the Merger and about the businesses of AGV and
Nucleus. In particular, you should review the sections entitled "Reasons of
the AGV and Nucleus Boards for the Merger" and "Recommendation of the AGV
Board: Factors Considered" under the heading "The Merger--Description of the
Merger" for the reasons why we believe the Merger is in the best interest of
AGV stockholders. You should also review the section entitled "Risk Factors"
for the risks related to the Merger and the businesses of AGV and Nucleus.
Your Board of Directors believes the Merger with Nucleus is in the best
interest of AGV and its stockholders and unanimously recommends that you vote
FOR approval of the Merger Proposal. Your Board of Directors also believes the
election of the nominees for election to AGV's Board of Directors is in the
best interest of AGV and its stockholders and unanimously recommends that you
vote FOR approval thereof.
We look forward to greeting personally those stockholders who are able to
be present at the meeting; however, whether or not you plan to attend the
Special Meeting, please complete, date and sign your proxy card and return it
promptly in the enclosed envelope. If you attend the Special Meeting you may
vote in person, even if you previously returned a proxy.
Thank you for your cooperation.
On behalf of the Board of Directors
/s/ Steven H. Walker
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Steven H. Walker
President and Chairman of the Board
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
April 15, 1999 AT 10:00 A.M. LOCAL TIME
You are hereby notified that a Special Meeting of Stockholders of Nucleus,
Inc., a Nevada corporation formerly known as American General Ventures, Inc.
(for ease of reference, hereinafter referred to as "AGV"), will be held at the
Hotel Monaco, 225 North Wabash Avenue, Chicago, Illinois, at 10:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of October 30, 1998 (the "Merger
Agreement"), between AGV and Nucleus Holding Corporation, an Illinois
corporation ("Nucleus"), pursuant to which (i) Nucleus will be merged with
and into AGV, following which AGV will be the surviving corporation and
(ii) each outstanding share of Nucleus Common Stock will be converted into
the right to receive 5,307.109 shares of AGV Common Stock, as more fully
described in the accompanying Proxy Statement.
2. To elect 5 directors to serve for the ensuing year.
A copy of the Merger Agreement is set forth as Appendix A to the Proxy
Statement and is incorporated herein by reference. The Board of Directors of
AGV unanimously recommends that you vote FOR the Merger and FOR the election
of the directors nominated by the Board of Directors.
Stockholders of record at the close of business on March 8, 1999 will be
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof. The affirmative vote of a majority of the shares of AGV Common Stock
present or represented and entitled to vote at the Special Meeting is required
for approval of the Merger and the Merger Agreement. The 4 nominees for
election as directors at the Special Meeting who receive the greatest number
of votes cast for the election of directors at the Special Meeting by the
holders of the AGV Common Stock entitled to vote at the meeting shall become
directors of AGV.
Whether or not you plan to attend the Special Meeting, please sign, date
and return the enclosed proxy in the reply envelope provided. No postage is
necessary if mailed within the United States. The prompt return of your proxy
will assist us in preparing for the Special Meeting. Stockholders who attend
the Special Meeting may revoke their proxy and vote their shares in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Christopher S. Walker
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Christopher S. Walker
Treasurer
Colorado Springs, Colorado
March 19, 1999
<PAGE>
NUCLEUS, INC.
PROXY STATEMENT FOR SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD
April 15, 1999
The Proxy Statement is being furnished to holders of Nucleus, Inc., a
Nevada corporation formerly known as American General Ventures, Inc. (for ease
of reference hereinafter referred to as "AGV") in connection with the
solicitation by the Board of Directors of AGV (the "Board") of proxies for use
at a special meeting of stockholders (the "Stockholders Meeting"), to be held
at the Hotel Monaco, 225 North Wabash Avenue, Chicago, Illinois at 10:00 a.m.,
local time, and any adjournments or postponements thereof. This Proxy
Statement is first being mailed to stockholders of AGV on or about March 19,
1999.
At the Meeting, stockholders are being asked to vote on the following two
proposals:
(A) Approval of the combination of AGV and Nucleus Holding Corporation,
an Illinois corporation ("Nucleus"), through the proposed merger (the
"Merger") of Nucleus with and into AGV, pursuant to an Agreement and Plan
of Merger dated as of October 30, 1998, by and between AGV and Nucleus, as
amended (the "Merger Agreement"), and the issuance of AGV Common Stock (as
herein defined) in connection therewith. If the Merger is consummated,
Nucleus will be merged with and into AGV, each outstanding share of Nucleus
Common Stock, no par value ("Nucleus Common Stock"), will be converted into
the right to receive 5,307.109 shares of AGV common stock, $0.001 par value
("AGV Common Stock").
(B) The election of 5 directors to serve for the ensuing year.
Steven H. Walker and Christopher S. Walker, two of the current directors of
AGV, beneficially own six hundred two thousand five hundred twenty (602,520)
Shares of Common Stock (excluding Shares subject to warrants) representing
approximately fifty-three and three hundredths percent (53.3%) of the total
outstanding shares on the Record Day. Because both these directors have
indicated the intention to vote in favor of the Merger, passage of the
proposal is assured (see "Summary--Interests of Certain Persons in the
Merger").
Following approval of the Merger, current AGV stockholders will own
seventeen and six tenths percent (17.6%) of the Combined Company, and
CapitalOne Holdings, Inc., the existing owner of Nucleus, will own eighty-two
and four tenths percent (82.4%) of the Combined Company (see "Summary--
Conversion of Shares"). CapitalOne Holdings, Inc. is beneficially owned by
John C. Paulsen.
The date of this Proxy Statement is March 19, 1999.
DELIVERY OF DOCUMENTS
The following documents which have been filed with the Commission pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act") are attached
hereto and incorporated herein:
(a) AGV's Annual Report on Form 10-KSB/A for the fiscal year ended
December 31, 1998;
The information relating to AGV contained in this Proxy Statement does not
purport to be comprehensive and should be read together with the information
in the documents delivered herewith.
Any statement contained in a document incorporated herein will be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained in this Proxy Statement or in any subsequently
filed document which is deemed to be incorporated by reference modifies or
supersedes such statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
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SUMMARY
The following is a summary of certain of the information included elsewhere
in this Proxy Statement. The summary does not purport to be complete and
should be read in conjunction with the more detailed information contained in
this Proxy Statement, the appendices and the material incorporated by
reference. Cross-references in this Summary refer to indicated captions or
portions of this Proxy Statement. See "Risk Factors" for certain information
that should be considered by the stockholders of AGV.
On May 8, 1997, the shareholders of AGV approved a one for ten reverse
stock split. The numbers in this proxy statement have been adjusted
retroactively to give effect for this reverse stock split, which became
effective December 11, 1998.
THE PARTIES
AGV
AGV, through its subsidiary ACI Micro Systems, Inc. ("ACI"), is engaged in
the business of selling computers and computer accessories which are
manufactured by other parties.
AGV entered the computer sales business as a retailer to local customers
and has also evolved into an internet based provider of computer systems.
Initially, AGV internet sales were made via Wal-Mart's web site, Wal-Mart
Online. AGV has had two vendor agreements with Wal-Mart. The first agreement
(entered into in August, 1995) was a resale agreement for Wal-Mart to sell AGV
computers in their retail stores. The first agreement was terminated by mutual
consent in April, 1997. The second agreement (entered into in June, 1997)
permitted AGV to sell its computers from Wal-Mart's web site, Wal-Mart Online.
The second agreement was terminated on October 30, 1998 by mutual consent of
both parties as Wal-Mart was concerned over the quality of AGV's products and
its customer service and AGV suspected violations of customer return policies.
As of this date a new agreement has not been consummated.
The discontinuance of the Wal-Mart agreement, and the loss of the
associated revenue, has and will continue to have a severe effect on AGV's
results of operation, liquidity and capital resources.
AGV does not have a contractual relationship with any system provider,
electing to submit individual purchase orders to such system providers for
price quotes upon receipt of a customer order. Prices are generally
established by a system provider from a price list dependent upon the
components and/or systems requested by a customer. AGV has historically used
Pony Computer and Aberdeen Trading to fulfill its internet generated orders.
The satisfaction of AGV's customers is dependent on the customer receiving
a quality product meeting their specifications. AGV's two primary system
providers for the Wal-Mart agreement employed different product delivery
techniques. The Company believes its relationship with Pony Computers and the
delivery format used by Pony resulted in poor customer satisfaction.
Pony Computers fulfilled a majority of AGV's orders related to Wal-Mart
Online and orders made through Wal-Mart's web site. Pony delivered these
systems to customers using a drop shipment technique. Although AGV monitored
the administrative matters involved in the shipment (e.g., correct shipping
address), and handled post delivery service, AGV was unable to examine the
systems for proper componentry or test and inspect the systems to ensure
functionality prior to a customer delivery. AGV, and its customers, often
experienced significant quality problems (e.g., systems not operating
properly, incorrect components, etc.) with Pony's systems. AGV's management
believed that the poor quality of systems shipped by Pony caused the
termination of the second Wal-Mart agreement referred to above. As a result,
AGV discontinued its use of Pony to fulfill its system requirements in
November, 1998.
AGV continues to purchase systems from Aberdeen Trading as well as other
system providers.
Aberdeen Trading ships systems directly to AGV where they are inspected and
tested for conformity to the sales order, cosmetic appearance and overall
operation. The return rate for these systems had a below-industry standard
return rate. See also "Risk Factors--Discontinuance of Relationship with Wal-
Mart" and "Business--Wal-Mart".
AGV was incorporated under the name American General Ventures, Inc. on
November 13, 1984, under the laws of the State of Nevada. American General
Ventures, Inc. changed its name to Nucleus, Inc. on December 8, 1998. AGV's
headquarters are located at 3650 Austin Bluffs Parkway, Suite 138, Colorado
Springs, Colorado, 80918, telephone (719) 548-1616.
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Nucleus
The product offerings of Nucleus currently consist of "PC Express", a
computer repair and upgrade business, "PC OnLine," a computer help desk, and
"TelOne" a long distance reseller and acquirer of telecom assets.
Nucleus commenced operations on April 30, 1997, and was incorporated on
December 22, 1997, under the laws of the State of Illinois. Nucleus'
headquarters are located at 150 North Michigan Avenue, Suite 3610, Chicago,
Illinois 60601, telephone (312) 683-9000. Computer activities are carried out
through Nucleus' wholly-owned subsidiary, Nucleus Data Source, Inc., and
telecom activities are carried out through Nucleus' wholly-owned subsidiary
Alliance Net, Inc. Unless the context otherwise indicates, all references
herein to Nucleus include Nucleus Data Source, Inc. and Alliance Net, Inc. See
"Nucleus--Business."
THE MEETING
Introduction
At the Meeting, AGV stockholders will be asked to vote on the following two
proposals (collectively the "Proposals"):
(A) Approval of the Merger Agreement; the combination of AGV and Nucleus
through the Merger; and the issuance of the AGV Common Stock in the Merger
at an exchange ratio of 5,307.109 shares of AGV Common Stock for each share
of Nucleus Common Stock (the "Exchange Ratio"); and
(B) The election of 5 directors to serve for the ensuing year.
Time, Date and Place
The Meeting will be held on April 15, 1999, at 10:00 a.m., local time at
the Hotel Monaco, 225 North Wabash Avenue, Chicago, Illinois.
Record Date; Shares Entitled to Vote
Holders of record of AGV Common Stock at the close of business on March 8,
1999 (the "Record Date") will be entitled to notice of and to vote at the AGV
Meeting. At the close of business on March 8, 1999, 1,129,827 shares of AGV
Common Stock were issued and outstanding. Each outstanding share of AGV Common
Stock is entitled to one vote at the AGV Meeting, except that with respect to
the election of directors, stockholders are entitled to cumulate their votes
for one or more directors.
See "Introduction--Voting and Proxies" and "Vote Required--Nucleus."
Vote Required--AGV
The affirmative vote of a majority of the shares of AGV Common Stock
present or represented at the Meeting and entitled to vote is required for
approval of the Merger and the Merger Agreement. The 5 nominees for election
as directors at the AGV Meeting who receive the greatest number of votes cast
for the election of directors at that meeting by the holders of the AGV Common
Stock entitled to vote at the meeting shall become directors of AGV.
Stockholders are entitled to cumulative voting in the election of directors.
The presence, either in person or by proxy of the holders of at least a
majority of the outstanding shares of AGV Common Stock entitled to vote is
necessary to constitute a quorum at the Meeting. Directors and executive
officers of AGV as a group (2 persons) beneficially owned 602,520 shares of
AGV Common Stock (excluding shares subject to warrants), representing
approximately 53.3% of the total outstanding shares on the Record Date.
Management of AGV believes that both of its directors and executive officers
who own shares of AGV Common Stock intend to vote in favor of both of the
Proposals. See "AGV--Beneficial Ownership of AGV Common Stock."
Nucleus Vote
The affirmative vote of the holders of two-thirds of the outstanding shares
of Nucleus Common Stock entitled to vote were required for approval of the
Merger and the Merger Agreement. CapitalOne Holdings, Inc., an Illinois
corporation and personal holding company of John C. Paulsen ("CapitalOne") is
the beneficial owner of 100% of the outstanding shares of stock of Nucleus. On
October 24, 1998, CapitalOne voted to approve the Merger and Merger Agreement.
John C. Paulsen is the beneficial owner of 100% of the outstanding shares of
CapitalOne. See "The Merger--Description of the Merger--Interests of Certain
Persons in the Merger" and "Nucleus--Beneficial Ownership of Nucleus Common
Stock."
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THE MERGER
General
At the Effective Time (as defined below), if the Merger is consummated
Nucleus will merge with and into AGV. Nucleus Holdings, Inc. will no longer
exist and AGV (Nucleus, Inc.) will be the surviving corporation (hereinafter
referred to as the "Combined Company").
Reasons for the Merger
The AGV and Nucleus Boards believe the merger of Nucleus and AGV will
create a stronger company by integrating complementary lines of business. The
Combined Company intends to continue the computer business of Nucleus and AGV
and the telecommunications business of Nucleus. The computer business of the
Combined Company will comprise 4 categories which have been carried out to-
date by Nucleus: on-premise sales; internet build-to-order sales; online help;
and express repair. In addition, following the Merger, the Combined Company
intends to begin acquiring and consolidating other telecommunications
companies, and other computer sales and hardware, build-to-order, and service
companies. Neither AGV nor Nucleus currently have any plans or proposals to
acquire any computer or telecommunications companies.
Material Advantages and Disadvantages of the Proposed Merger
The material advantages and disadvantages of the proposed Merger to AGV
stockholders are as follows:
.Opens up a distribution channel through which AGV can sell computers
.Expands ability of AGV to build, rather than outsource, production of
computers
.Expands ability of AGV to perform maintenance on computers
.Expands sales capacity of AGV, allowing for volume discounts
.No assurance that the companies can be successfully combined and be
profitable
.AGV stockholders will relinquish voting control of the company
See "The Merger--Reasons of the AGV and Nucleus Boards for the Merger." "--
Recommendation of the AGV Board: Factors Considered," and "Decision of the
Nucleus Board: Factors Considered."
Recommendation of the AGV Board of Directors
The AGV Board unanimously approved the Merger and the Merger Agreement. The
AGV Board unanimously recommends that AGV stockholders vote FOR the approval
of both of the Proposals. See "The Merger--Description of the Merger--
Recommendation of the AGV Board: Factors Considered" for a discussion of the
factors considered by the AGV Board in approving the Merger and the Merger
Agreement.
Decision of the Nucleus Board of Directors
The Nucleus Board unanimously approved the Merger and the Merger Agreement.
See "The Merger--Description of the Merger--Decision of the Nucleus Board:
Factors Considered" for a discussion of the factors considered by the Nucleus
Board in approving the Merger and the Merger Agreement.
Risk Factors
In connection with a determination to approve the Merger and the Merger
Agreement, stockholders should evaluate the risk factors associated with AGV,
Nucleus and the operation of AGV and the Combined Company. There can be no
assurance that the Combined Company will be able to achieve a profit. For a
more detailed description of the risk factors associated with the Merger and
the business of AGV and the Combined Company, see "Risk Factors."
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Neither AGV nor Nucleus have obtained an opinion from an investment bank or
another independent third party as to the fairness of the Merger, nor is AGV
in the business of evaluating the fairness of mergers.
Interests of Certain Persons in the Merger
In considering the recommendation of the AGV Board and the decision of the
Nucleus Board with respect to the Merger, stockholders should be aware that
Steven H. Walker, and Christopher S. Walker, two current directors of AGV,
beneficially own, without taking account of the exercise of certain warrants
beneficially owned by such individuals, approximately 43% and 10.3%
respectively, of the outstanding AGV Common Stock, and immediately following
the Merger Steven H. Walker and Christopher Walker will beneficially own,
without taking account of the exercise of such warrants, approximately 7.5%
and 1.8% of the outstanding AGV Common Stock.
In considering the decision of the Nucleus Board with respect to the
Merger, stockholders should be aware that John C. Paulsen, President and Chief
Executive Officer of Nucleus, beneficially owns 100% of the outstanding
Nucleus stock, and immediately following the Merger, Mr. Paulsen will
beneficially own 82.4% of the outstanding AGV stock. In addition, pursuant to
the Merger Agreement, Mr. Paulsen and three persons designated by Mr. Paulsen
have been nominated as directors of AGV. See "--Board Representation."
The Merger Agreement provides that following the Merger AGV will indemnify,
defend and hold harmless to the full extent permitted by the General
Corporation Law of the State of Nevada (the "Nevada Law") each officer,
director and agent of Nucleus against all losses, claims, damages and actions
resulting from their service as directors, officers or agents of Nucleus prior
to the Merger, including, without limitation all losses, claims, damages and
actions arising out of the negotiation, execution and delivery of the Merger
Agreement and the consummation of the Merger.
See "The Merger--Description of the Merger--Interests of Certain Persons in
the Merger."
If all the nominees for election to the AGV Board are elected and the
Merger is consummated the members of the AGV Board will be: John Paulsen,
Stephen Calk (nominated by Mr. Paulsen), Mark Fera (nominated by Mr. Paulsen),
J. Theodore Hartley (nominated by Mr. Paulsen), Jeffrey Wescott (nominated by
Mr. Paulsen) and Steven Walker and Adriann Belinne (current directors of AGV).
Christopher Walker will resign as a director of AGV.
Effective Time
The Merger will become effective when the Certificate of Merger and
Articles of Merger are duly filed with the Secretary of State of the State of
Illinois and the Secretary of State of the State of Nevada or at such later
time as specified in the Certificate of Merger and Articles of Merger (the
"Effective Time"). The filing of the Certificate of Merger and Articles of
Merger will be made as soon as practicable after all conditions set forth in
the Merger Agreement have been satisfied or waived, including approval of the
Merger by the stockholders of AGV. See "The Merger--The Merger Agreement--
Effective Time."
Conversion of Shares
At the Effective Time of the Merger, each share of Nucleus Common Stock
outstanding immediately prior to the Effective Time (except as otherwise
provided with respect to shares as to which dissenters' rights will have been
exercised) will be converted into the right to receive 5,307.109 shares of AGV
Common Stock.
The following table presents the equity interest of AGV and Nucleus
stockholders on a pro forma combined basis as of March 8, 1999 based on the
Exchange Ratio.
<TABLE>
<CAPTION>
Shares %
--------- ------
<S> <C> <C>
Current AGV Stockholders(1).............................. 1,129,827 17.6%
Nucleus Stockholder...................................... 5,307,109 82.4%
Total Pro Forma Combined Company Stockholders............ 6,436,936 100.0%
</TABLE>
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(1) Does not include outstanding warrants to purchase an aggregate of 367,050
shares of AGV Common Stock. If these shares were assumed to be
outstanding, current AGV stockholders would own an aggregate of 1,496,877
shares of AGV Common Stock, or 22.0% of the Combined Company, and the
Nucleus stockholder would continue to own 5,307,109 shares of AGV Common
Stock, or 78.0% of the Combined Company.
The Exchange Ratio is subject to proportional adjustment in the event that
any stock dividend, subdivision, reclassification, recapitalization, split-up
combination, exchange of shares or the like occurs between the date of this
Proxy Statement and the Effective Time. See "The Merger--The Merger
Agreement--Conversion of Shares."
Exchange of Stock Certificates
Promptly after the Effective Time, AGV will make available to the Exchange
Agent (as defined herein) the AGV Common Stock issuable to the Nucleus
stockholder in the Merger. See "The Merger--The Merger Agreement--Exchange of
Certificates."
Board Representation
Mr. John Paulsen, Chairman of the Board, President and Chief Executive
Officer of Nucleus, and four persons designated by Mr. Paulsen--Stephen Calk,
Mark Fera, J. Theodore Hartley, and Jeffrey Wescott--have been nominated as
directors of AGV for election at the Meeting.
Acquisition Proposals; No Solicitation
The Merger Agreement provides that Nucleus will not (and will not cause or
permit any of its subsidiaries to) solicit, initiate, or encourage the
submission of any proposal or offer from any Person (as defined) relating to
the acquisition of all or substantially all of the capital stock or assets of
Nucleus or its subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that Nucleus, its
subsidiaries, and their directors and officers will remain free to participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing to the
extent their fiduciary duties may require. The Merger Agreement also provides
that Nucleus shall notify AGV immediately if any person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
The Merger Agreement further provides that AGV will not (and will not cause
or permit any of its subsidiaries to) solicit, initiate, or encourage the
submission of any proposal or offer from any Person (as defined) relating to
the acquisition of all or substantially all of the capital stock or assets of
AGV or its subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange); provided, however, that AGV, its
subsidiaries, and their directors and officers will remain free to participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing to the
extent their fiduciary duties may require. The Merger Agreement also provides
that AGV notify Nucleus immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
Conditions to the Merger; Termination
The respective obligations of AGV and Nucleus to consummate the Merger are
each subject to various conditions which are set forth under "The Merger--The
Merger Agreement--Conditions." These include among others: (a) requisite
approval by the stockholders of AGV; and (b) the truth in all material
respects as of the Effective Time of the representations and warranties of AGV
and Nucleus set forth in the Merger Agreement. See "The Merger--The Merger
Agreement--Conditions."
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No federal or state regulatory requirements must be complied with and no
governmental approvals must be obtained in connection with the Merger.
The Merger Agreement is subject to termination by AGV and Nucleus either
before or after the approval of the AGV stockholders if the Effective Time has
not occurred by April 30, 1999 and prior to that time upon the occurrence of
certain events. The Merger Agreement is also subject to termination upon the
occurrence of certain events, including the event that Nucleus' Board of
Directors concludes that termination would be in the best interest of Nucleus
and its stockholders. See "The Merger--The Merger Agreement--Termination."
Tax Consequences
Management of AGV and Nucleus believe that the Merger will constitute a
tax-free reorganization within the meaning of a statutory merger as described
in Section 368(a)(l)(A) of the Internal Revenue Code. However, no opinion has
been received with respect to this matter.
Accounting Treatment
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes under Section 368(a)(1)(a) of the Internal
Revenue Code. However, consummation of the Merger is not conditioned upon the
confirmation from any independent accountant to the effect that the Merger
will qualify as a pooling of interests transaction in accordance with
generally accepted accounting principles and rules, regulations and policies
of the Commission. See "The Merger--Description of the Merger--Accounting
Treatment."
Rights of Dissenting Stockholders
AGV stockholders do not have appraisal rights in the Merger.
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MARKET PRICES OF AGV COMMON STOCK
The following table sets forth, for the calendar quarters indicated ended
March 31, June 30, September 30, and December 31, the range of high and low
bid quotations per share of AGV Common Stock as reported by NASD on the Over-
The-Counter Electronic Bulletin Board. Prior to December 8, 1998, Nucleus,
Inc. was known as American General Ventures, Inc.
On November 4, 1998 the last full trading date prior to the joint public
announcement by AGV and Nucleus of the signing of the Merger Agreement, the
average of the last reported high and low bid quotations reported by NASD on
the Over-The-Counter Electronic Bulletin Board (OTC-BB) for the AGV Common
Stock was $2.20 per share. Based upon the Exchange Ratio of 5,307.109 shares
of AGV Common Stock for one share of Nucleus Common Stock and the AGV market
price, the equivalent market price per share of Nucleus Common Stock as of
November 4, 1998, based upon the Exchange Ratio, would have been $11,675.64.
On March 8, 1999, the most recent practicable date prior to the printing of
this Proxy Statement, the average of the last reported high and low bid
quotations on the OTC-BB for AGV Common Stock was $0.83 per share, and the
equivalent market price per share of Nucleus Common Stock based upon the
Exchange Ratio would have been $4,404.90. These prices have been adjusted to
reflect the one-for-ten reverse stock split effective December 11, 1998.
<TABLE>
<CAPTION>
AGV Common Stock
----------------
Period High Bid Low Bid
------ -------- -------
<S> <C> <C>
1997
1st Quarter............................................ $ 4.60 $1.50
2nd Quarter............................................ $ 5.60 $1.50
3rd Quarter............................................ $ 4.30 $2.10
4th Quarter............................................ $12.80 $2.50
1998
1st Quarter............................................ $ 2.90 $2.20
2nd Quarter............................................ $ 3.20 $2.60
3rd Quarter............................................ $ 3.30 $3.10
4th Quarter............................................ $ 2.50 $2.10
1999
* 1st Quarter (through March 8, 1999).................... $ 2.00 $0.62
</TABLE>
8
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information of AGV and Nucleus has been
derived from their respective historical audited consolidated financial
statements, and should be read in conjunction with such historical
consolidated financial statements and the notes thereto, which for certain
periods are included elsewhere herein. The summary pro forma combined
financial information of AGV and Nucleus which gives effect to the Merger as
if it will be accounted for as a pooling of interests, is derived from the
unaudited pro forma condensed combined financial data and should be read in
conjunction with such pro forma data and the notes thereto, which are included
elsewhere in this Proxy Statement.
The pro forma information is presented for comparative purposes only and is
not necessarily indicative of the financial position or results of operations
which may occur in the future, or what the financial position or results of
operations would have been had the Merger been consummated for the periods or
as of the dates for which the pro forma data are presented. The numbers herein
have been adjusted retroactively to reflect AGV's 1-for-10 reverse stock
split, which became effective on December 11, 1998.
American General Ventures, Inc.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1994 1995 1996 1997 1998
--------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Sales................... $ 593,743 $985,979 $1,397,850 $ 721,745 $ 747,144
--------- -------- ---------- --------- ---------
Cost of sales........... 415,932 721,372 1,365,308 690,064 769,754
Selling and marketing
expenses............... 32,145 42,474 25,357 15,948 14,789
General and
administrative
expenses............... 178,401 145,235 675,675 413,264 441,068
Rent paid to related
party.................. 32,917 -- -- -- --
--------- -------- ---------- --------- ---------
Income (loss) from
operations............. (65,652) 76,898 (668,490) (397,531) (478,467)
Other income (expense).. (29,949) 43,483 (55,421) (33,390) (13,902)
--------- -------- ---------- --------- ---------
Income (loss) before tax
benefit and
extraordinary item..... (95,601) 120,381 (723,911) (430,921) (492,369)
Tax benefit............. -- -- -- -- 25,820
--------- -------- ---------- --------- ---------
Income (loss) before
extraordinary item..... (95,601) 120,381 (723,911) (430,921) (466,549)
Extraordinary item (net
of tax benefit of
$25,820) (1)........... -- -- -- -- 50,125
--------- -------- ---------- --------- ---------
Net income (loss)....... $( 95,601) $120,381 $ (723,911) $(430,921) $(416,424)
========= ======== ========== ========= =========
Earnings (loss) per
share before
extraordinary item .... $ (0.12) $ 0.15 $ (0.79) $ (0.45) $ (0.42)
Earnings (loss) per
share--basic (1)(2) ... $ (0.12) $ 0.15 $ (0.79) $ (0.45) $ (0.38)
========= ======== ========== ========= =========
Weighted average shares 1,106,056
outstanding basic (2).. 792,817 830,000 920,000 950,622
</TABLE>
- --------
(1) During 1997, AGV was involved in claims concerning disputed payable
balances totaling $129,945 with two suppliers. In 1998, the claims were
settled for $54,000, resulting in an extraordinary gain of $75,945
($50,125 net of tax).
(2) Diluted earnings per share equaled basic earnings per share for all
periods except for the year ended December 31, 1995, when diluted earnings
per share was $0.14 based upon 870,000 diluted weighted average shares
outstanding.
<TABLE>
<CAPTION>
As of December 31
---------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....... $ 131,678 $ 232,804 $ (140,544) $ (142,243) $ (320,887)
Total assets.......... $ 208,574 $ 324,012 $ 308,582 $ 256,571 $ 87,206
Long-term liabilities. $ 116,031 $ 129,691 $ 465,168 $ 129,432 $ 9,142
Accumulated deficit... $(1,618,421) $(1,544,401) $(2,221,951) $(2,652,872) $(3,069,296)
Stockholders' equity
(deficit)............ $ 53,878 $ 213,259 $ (510,652) $ (211,490) $ (288,639)
</TABLE>
9
<PAGE>
Nucleus Holding Corporation
<TABLE>
<CAPTION>
From
April 30,
1997
(inception)
to Year Ended
December 31, December 31,
1997(1) 1998
------------ ------------
<S> <C> <C>
Statement of Operations Data:
Sales.............................................. $ 956,810 $2,827,428
--------- ----------
Cost of sales...................................... 615,229 1,747,403
Selling and marketing expenses..................... 86,000 367,579
Research and development expenses.................. 248,690 40,883
General and administrative expenses................ 304,109 738,673
--------- ----------
Loss from operations............................... (297,218) (67,110)
Other income....................................... -- 35,008
--------- ----------
Net loss........................................... $(297,218) $ (32,102)
========= ==========
Loss per share--basic and diluted.................. $ (297.22) $ (32.10)
========= ==========
Weighted average number of shares outstanding--
basic and diluted................................. 1,000 1,000
========= ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
----------------------
1997(1) 1998
---------- ----------
<S> <C> <C>
Balance Sheet Data:
Working capital..................................... $ (332,395) $ (372,440)
Total assets........................................ $ 689,482 $ 573,712
Long-term liabilities............................... $ -- $ --
Accumulated deficit................................. $ (297,218) $ (329,320)
Stockholders' deficit............................... $ (294,218) $ (326,320)
</TABLE>
- --------
(1) Nucleus Holding Corporation commenced operations on April 30, 1997.
American General Ventures, Inc.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Pro Forma Combined
Statement of Operations
Data:
Sales.................. $593,743 $985,979 $1,397,850 $1,678,555 $3,574,572
-------- -------- ---------- ---------- ----------
Cost of sales.......... 415,932 721,372 1,365,308 1,305,293 2,517,157
Selling and marketing
expenses.............. 32,145 42,474 25,357 101,948 382,368
Research and
development expenses.. -- -- -- 248,690 40,883
General and
administrative
expenses.............. 178,401 145,235 675,675 717,373 1,179,741
Rent paid to related
party................. 32,917 -- -- -- --
-------- -------- ---------- ---------- ----------
Income (loss) from
operations............ (65,652) 76,898 (668,490) (694,749) (545,577)
Other income (expense). (29,949) 43,483 (55,421) (33,390) 21,106
-------- -------- ---------- ---------- ----------
Income (loss) before
taxes and
extraordinary item.... (95,601) 120,381 (723,911) (728,139) (524,471)
Tax benefit............ -- -- -- -- 25,820
-------- -------- ---------- ---------- ----------
Income (loss) before
extraordinary item.... (95,601) 120,381 (723,911) (728,139) (498,651)
Extraordinary item (net
of tax benefit of
$25,820) (1).......... -- -- -- -- 50,125
-------- -------- ---------- ---------- ----------
Net income (loss)...... $(95,601) $120,381 $ (723,911) $ (728,139) $ (448,526)
======== ======== ========== ========== ==========
Earnings (loss) per
share before
extraordinary item
(1)................... $ (0.12) $ 0.15 $ (0.79) $ (0.16) $ (0.08)
Earnings (loss) per
share--basic (1) (2).. $ (0.12) $ 0.15 $ (0.79) $ (0.16) $ (0.07)
======== ======== ========== ========== ==========
Weighted average number
of shares outstanding
basic (2)............. 792,817 830,000 920,000 4,488,695 6,413,165
======== ======== ========== ========== ==========
</TABLE>
10
<PAGE>
- --------
(1) During 1997, AGV was involved in claims concerning a disputed payable
balances totaling $129,945 with two suppliers. In 1998, the claims were
settled for $54,000, resulting in an extraordinary gain of $75,945 ($50,125
net of tax).
(2) Diluted earnings per share equaled basic earnings per share for all
periods except for the year ended December 31, 1995, when diluted earnings per
share was $0.14 based upon 870,000 diluted weighted average shares
outstanding.
<TABLE>
<CAPTION>
As of December 31
--------------------------------------------------------------------
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Pro Forma Combined
Balance Sheet Data:
Working capital........ $ 131,678 $ 232,804 $ (140,544) $ (474,638) $ (693,327)
Total assets........... $ 208,574 $ 324,012 $ 308,582 $ 946,053 $ 660,918
Long-term liabilities.. $ 116,031 $ 129,691 $ 465,168 $ 129,432 $ 9,142
Accumulated deficit.... $ (1,618,421) $ (1,544,401) $ (2,221,951) $ (2,950,090) $ (3,398,616)
Stockholders' equity
(deficit)............. $ 53,878 $ 213,259 $ (510,652) $ (505,708) $ (614,959)
</TABLE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of AGV and
Nucleus and combined per share data on an unaudited pro forma basis after
giving effect to the Merger as if it were accounted for as a pooling of
interests assuming that 5,307.109 shares of AGV Common Stock are issued in
exchange for each share of Nucleus Common Stock in the Merger. This data
should be read in conjunction with the selected historical and pro forma
financial data, the pro forma combined condensed financial data and the
separate audited historical financial statements of AGV and Nucleus and notes
thereto included elsewhere in this Proxy Statement. The unaudited pro forma
combined financial data are not indicative of the operating results that would
have been achieved had the transaction been in effect at the beginning of the
periods presented and should not be construed as representative of future
operations.
Pro forma equivalent Nucleus amounts are calculated by multiplying the AGV
pro forma combined net income (loss) per common share and AGV pro forma
combined book value per common share by the Exchange Ratio so that the per
share amounts are equated to the respective amounts for one share of Nucleus
Common Stock.
Neither AGV nor Nucleus has paid cash dividends since its inception. AGV
currently intends to retain all earnings for use in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
payment of future dividends will be at the discretion of the AGV Board and
will depend, among other things, on AGV's earnings, capital requirements, and
financial condition and debt covenants.
11
<PAGE>
The following information is not necessarily indicative of the financial
position or results of operations which may occur in the future or what the
financial position or results of operations would have been had the Merger
been consummated for the periods or as of the dates for which such information
is presented. The numbers herein have been adjusted retroactively to reflect
AGV's 1-for-10 reverse stock split, which became effective on December 11,
1998.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1994 1995 1996 1997 1998
------ ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net income (loss) per common share:
AGV
Historical.......................... $(0.12) $0.15 $(0.79) $ (0.45) $ (0.38)
Pro forma combined.................. $(0.12) $0.15 $(0.79) $ (0.16) $ (0.07)
Nucleus
Historical.......................... n/a n/a n/a $(297.22) $ (32.10)
Pro forma equivalent................ n/a n/a n/a $(860.90) $(371.17)
<CAPTION>
As of December 31
----------------------------------------
1994 1995 1996 1997 1998
------ ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Book value per common share:
AGV
Historical.......................... $ 0.07 $0.26 $(0.56) $ (0.20) $ (0.26)
Pro forma combined.................. $ 0.07 $0.26 $(0.56) $ (0.08) $ (0.10)
Nucleus
Historical.......................... n/a n/a n/a $(294.22) $(326.32)
Pro forma equivalent................ n/a n/a n/a $(421.56) $(507.02)
</TABLE>
RISK FACTORS
PRIOR TO VOTING UPON THE MERGER PROPOSAL,
STOCKHOLDERS SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE
OTHER INFORMATION SET FORTH
ELSEWHERE IN THIS PROXY STATEMENT.
Lack of Profitable Operations. AGV's revenue to date has not been
sufficient to offset the expenses incurred in its business activities. AGV had
a net loss of $416,424 for the year ended December 31, 1998, and an
accumulated deficit of $3,069,296 at December 31, 1998. Nucleus has only a
brief operating history, having commenced its principal lines of business in
1997. There can be no assurance that the Combined Company will achieve
profitability. The profitability of the Combined Company, will depend, among
other things, on the successful integration of the business activities of the
two companies, and on growing the Combined Company through acquisitions.
Lack of Management Experience. The management of AGV following the Merger,
although experienced in the telecommunications industry, has only limited
experience in the computer business. See "Election of AGV Directors" and
"Executive Officers and Directors."
"CheckBook" and the "Business Browser" are Unproven Technologies. A portion
of Nucleus' business plan is to develop and market "CheckBook," a web site
that stores, tracks, and presents billing information over the Internet, along
with "Business Browser" a front-end tool that allows clients to directly
access frequently used web sites via a simplified user interface. Although
management believes that "CheckBook" and "Business Browser" will be
successful, the respective technologies are still under development, and there
can be no assurance that "CheckBook" or "Business Browser" can be successfully
developed, marketed, or sold. Nucleus has temporarily discontinued funding the
development of CheckBook and the Business Browser to focus on its core
operations with respect to reselling telecommunication services and providing
computer installation and
12
<PAGE>
integration services. Nucleus' shareholder does not currently intend to fund
these research and development activities. Additionally, the Combined Company
currently expects that any future funding of such activities would need to be
provided by cash from operations. Neither CheckBook nor Business Browser has
reached technological feasibility and the Combined Company currently believes
additional investment would need to be made for such products to reach a
technologically feasible state. Since the development of these products has
been temporarily discontinued the Combined Company does not anticipate such
products to become technologically feasible in the foreseeable future.
Lack of Technical Experience. AGV and Nucleus employees have limited
experience in developing the "CheckBook," and "Business Browser" technologies.
Consequently, the Combined Company will need to rely on third parties in order
to continue the development of these technologies.
Start-up Computer Business. "PC Express" and "PC OnLine" have generated
only limited revenues, and can best be characterized as "start-up" businesses.
There can be no assurance that "PC Express" and "PC OnLine" can be
successfully expanded or can generate significant revenues or profits.
Risks Inherent in Growth Strategy. The Combined Company's business strategy
depends in part, on its ability to acquire additional computer service
companies, computer build-to-order companies, computer sales and hardware
companies, and telecommunications resellers. This strategy, which the combined
company intends on pursuing after the Merger, is dependent on the continued
availability of suitable acquisition candidates and subjects the Combined
Company to the risks inherent in assessing the value, strengths and weaknesses
of acquisition candidates, and the operations of the acquired companies. The
Combined Company's growth is expected to place significant demands on the
Combined Company's financial and management resources. In recent years,
acquisition prices and competition for these type of companies has increased.
To the extent the Combined Company is unable to acquire companies in a cost-
effective manner, its ability to expand its business and enhance results of
operations would be adversely affected. In addition, the process of
integrating acquired operations presents a significant challenge to the
Combined Company's management and may lead to unanticipated costs or a
diversion of management's attention from day-to-day operations. There can be
no assurance that the Combined Company will be able to achieve its growth
strategy or that this strategy will ultimately prove successful. A failure to
successfully achieve its growth strategy could have an adverse effect on the
Combined Company's results of operations.
Management of Growth. The Combined Company requires an effective planning
and management process to fully exploit the emerging demand for Internet
payment services. To manage this anticipated rapid growth, the Combined
Company must be able to implement and improve its operational and financial
systems and train and manage its employee base. Further, AGV and Nucleus are
required and the Combined Company will continue to be required to manage
multiple relationships among various financial institutions, merchants,
transaction processors, strategic partners, technology distributors, and other
third parties. Although AGV and Nucleus believe they have made adequate
allowances for the costs and risks associated with this expansion, there can
be no assurance that the Combined Company's systems, procedures, or controls
will be sufficient to support current or future operations, or that the
Combined Company's management will be able to concurrently deal with this
expansion to achieve the rapid execution necessary to fully exploit the market
window for the Combined Company's services, particularly Internet Payment
Services, in a timely and cost-effective manner. There also can be no
assurance that the Combined Company will be able to successfully compete with
the more extensive and well-funded sales and marketing and research and
development operations of the Combined Company's competitors. If the Combined
Company is unable to manage growth, integrate operations effectively, or
achieve the rapid expansion necessary to fully exploit the market window for
the Combined Company's services in a timely and cost-effective manner, the
business, operating results and financial condition of the Combined Company
may be materially adversely affected.
Possible Inability to Obtain NASDAQ SmallCap Listing. The Combined
Company's business strategy depends on significant part on its ability to
acquire additional computer service companies, computer build-to-order
companies, computer sales and hardware companies, and telecommunications
resellers. This strategy is
13
<PAGE>
dependent on utilizing the common stock of the Combined Company. Presently,
the common stock of the Combined Company is reported by NASD on the Over-the-
Counter Electronic Bulletin Board (OTC-BB). The Combined Company's strategy
depends, to a significant extent, on being able to obtain NASDAQ SmallCap
listing. In order to obtain NASDAQ SmallCap Listing, a company is required,
among other things, to have a public float of $5 million, one million
publicly-held shares, 300 shareholders, a minimum bid price of $4, a one-year
operating history and three market makers. Also required for NASDAQ SmallCap
Listing is either $4 million in net tangible assets, a $50 million market
capitalization, or $750,000 in net income in two of the last three years. At
the time of the Merger, the Combined Company will not have the required public
float, number of publicly held shares, net assets, market capitalization or
net income, and there can be no assurance that the Combined Company will be
able to meet these or the other NASDAQ SmallCap requirements in the near
future. Failure of the Combined Company to obtain NASDAQ SmallCap listing
could have a material adverse effect on the Company's business strategy.
Possible Lack of Market Acceptance of AGV Common Stock. The business
strategy of the Combined Company depends, to a large extent, upon the
willingness of a potential seller to accept AGV Common Stock for his business.
Even if the Combined Company achieves NASDAQ SmallCap listing, there can be no
assurance that a seller will accept such AGV Common Stock for his business.
Neither AGV nor Nucleus currently has any plans or proposals to acquire other
companies.
Discontinuance of Relationship with Wal-Mart. AGV's revenues have been
largely dependent on its relationship with Wal-Mart. AGV and Wal-Mart
terminated their business relationship in October 1998. The discontinuance of
the WalMart relationship will have an adverse effect on the combined company's
results of operations. See "The Business--WalMart".
Consequently, any revenues previously achieved by AGV should not be relied
upon as an indication of revenues that could be achieved by the Combined
Company in the future.
Uncertain Development of Markets. At this early stage of development, the
markets of the Combined Company are rapidly evolving and are characterized by
an ever-increasing number of market entrants producing similar products and
services. Typically, demand and market acceptance for recently introduced
products and services are highly uncertain in new rapidly evolving industries.
Internet security, reliability, cost, ease of use, and quality of service are
factors that may affect the general growth of the use of the Internet and,
specifically, the use of Internet commerce.
Capital Needs. To date, AGV has relied primarily on equity and debt
financing, along with loans from officers, to finance its operations. Although
AGV believes that the Combined Company will achieve profitability in the near
future, there is no assurance that it will be able to do so, or, if it cannot
achieve profitability, that the Combined Company will be able to obtain
additional funds. If adequate funds are not available, the Combined Company
may be required to significantly curtail its business activities.
The Company expects to seek, from time to time, additional sources of
funds, the form of which will vary depending upon prevailing market and other
conditions and may include short or long-term borrowings or the issuance of
debt or equity securities. However, there can be no assurance that AGV will be
able to obtain additional funds or, if such funds are available, that such
funding will be on favorable terms. See "AGV--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Nucleus--
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition. The long distance, Internet and PC industries are intensely
competitive and are significantly affected by new service introductions and
the market activities of major industry participants. Competition is based
upon pricing levels, network and customer service quality, and the
availability of value-added services.
The ongoing competitiveness of the Combined Company within these industries
will depend on its continued ability to maintain high-quality, market-driven
services at prices, in most cases, equal to or below those charged by its
competitors. There can be no assurance that the Combined Company will be able
to successfully compete with existing or future competitors.
14
<PAGE>
Due to a dynamic growth environment, the Combined Company expects
competition to persist and intensify in the foreseeable future. AGV and
Nucleus currently compete and the Combined Company may eventually compete with
companies with longer operating histories, greater name recognition, larger
customer bases, and greater overall resources.
Web browser companies, software and hardware vendors such as Microsoft, as
well as many of Nucleus' collaborative partners may well present a significant
challenge to the success of the Combined Company now or in the near future by
establishing cooperative relationships among themselves or with third parties
to increase their competitive edge. There is no assurance that the competitive
pressures faced by the Combined Company in the future will not have a material
adverse effect on its business, financial condition, or operating results.
Risks of "Just-In-Time" Inventory. In order to maintain its cash position,
AGV has adopted a "just-in-time" method of inventory by which customer
equipment is purchased and assembled after sale. This method of inventory
control, although maintaining a company's cash position, can cause loss of
sales due to the lack of inventory, inability to deliver products and services
in a timely manner, and loss of discounts due to single-item purchasing, as
opposed to purchasing in volume.
CheckBook's Development of New Services. CheckBook's anticipated revenues
will be substantially derived from relatively small fees charged to
subscribers and larger fees charged to vendor companies. The market for these
services is characterized by rapidly changing technology and evolving industry
standards. Furthermore, large numbers of transactions are essential, as is the
Combined Company's ability to design, develop, test, introduce, and support
new services and enhancements on a timely basis. Changing end-user needs must
be met, and response to technological developments and emerging industry
standards must be facilitated.
Limited Customer Service. AGV does not have an established customer service
program as compared to its competitors - some of which have 24 hour, 7 day
service and substantially more capital resources than does AGV. The Company's
customer service can best be described as limited as AGV does not have the
systems, personnel, or capital to establish a high end customer service
operation. The inability to provide comprehensive customer service may have a
negative impact on AGV's ability to compete in its industry and may also have
an adverse effect on AGV's operating results.
Risks of Defects and Delays in Development. Software-based services and
computing systems, such as the ones which comprise PC OnLine and CheckBook,
often experience delays in development, and the basic software package may
contain undetected errors or failures when initially introduced or, at a later
date, when the volume of provided services increases. In light of this fact,
the Combined Company may encounter delays in the development of its underlying
software and computing systems. Additionally, there can be no assurance that,
in spite of thorough testing by the Combined Company and its potential
customers, errors will not exist in the basic software, or that the Combined
Company will not experience impediments in development that will delay the
shipment of its software, the commercial release of its services, or the
market acceptance of its services, any of which could have a material adverse
affect on the business, financial condition, or operating results of the
Combined Company.
Dependence on Key Personnel. The overall performance of the Combined
Company will be dependent, in large part, upon the performance of its
executive officers and key employees, most of whom will not have previously
worked together. Consequently, it is incumbent upon the Combined Company to
retain and motivate high-quality personnel, with particular emphasis on
management and specialized development teams. Neither AGV nor Nucleus
currently maintains, or intends to maintain, "key person" life insurance
policies on any of its employees. Therefore, the loss of any one of their key
employees, particularly the founder of Nucleus, John C. Paulsen, could have a
material adverse effect on the general business climate of the Combined
Company. In order to ensure future success, the Combined Company must also be
able to identify, hire, train, and retain highly qualified technical and
managerial personnel. Because competition for qualified personnel is intense,
there can be no assurance that the Combined Company will be able to attract,
assimilate, or retain qualified technical and managerial personnel in the
future. The failure of the Combined Company to do so may have a material
adverse affect on the business, financial condition, and operating results of
the Combined Company.
15
<PAGE>
Limited Manufacturing Capability. AGV does not currently assemble
(manufacture) its products and Nucleus has only limited capability and
experience in assembling (manufacturing) its products. Consequently, there can
be no assurance that computers that are manufactured (assembled) by third
parties will meet the respective companies' standards for quality. Moreover,
no assurance can be provided that the required third party manufacturing
capability of the Combined Company will continue in the future. Failure of the
Company to continue to have access to high quality computer manufacturing
capability at competitive prices would have a material adverse effect on the
Company's business, financial condition and results of operations.
Government Regulation. The operations of Nucleus are subject to various
state and federal regulations. Because Internet commerce, in general, and
Nucleus' services, in particular, are so new, the application of many of these
regulations is uncertain and difficult to interpret. The agencies responsible
for the interpretation and enforcement of these regulations could amend those
regulations or implement new interpretations of existing regulations. New
legislation may also be passed that would impose additional regulations on the
Combined Company. Any such change in the regulations applicable to the
business of the Combined Company could lead to increased operating costs and
could reduce the convenience and functionality of the Combined Company's
services, resulting in reduced market acceptance. Furthermore, if a regulatory
agency or law enforcement authority asserts that the Combined Company is
failing to comply with existing regulations, the cost of responding to such a
challenge could result in significant drains on the Combined Company's
financial and management resources. This occurrence could have a material
adverse effect on the business, financial condition or operating results of
the Combined Company.
The Internet is becoming increasingly popular, and it is possible that laws
and regulations may be enacted that would cover issues of user privacy,
pricing, content, characteristics, and quality of products and services, the
adoption of which may decrease the growth of the Internet. This, in turn,
could decrease the demand for the Combined Company's services, increase the
cost of doing business, or could otherwise have a material adverse effect on
the business, financial condition, or operating results of the Combined
Company.
Limited Marketing Capability. Neither AGV nor Nucleus have large,
established sales forces and both primarily rely on third parties to market
their products. There can be no assurance that the Combined Company's
marketing strategy will be successful. The Combined Company's ability to
market its products successfully in the future will be dependent on a number
of factors, many of which are not within its control.
Risk of Loss from Returned Transactions, Merchant Fraud, or Erroneous
Transmissions. The Combined Company will be utilizing two principal fund
transfer systems: the automated clearing house ("ACH")
system for electronic fund transfers and the national credit card systems
(e.g., Master Card, Visa, American Express, and Discover) for electronic
credit card settlements. As a user of these established payment systems, the
Combined Company may bear some of the credit risks assumed by other users of
these systems arising from returned transactions due to unauthorized use,
disputes, theft, or fraud. The Combined Company may also bear some risk of
merchant fraud and transmission errors if the recipient of erroneously
transmitted funds fails to return them. Additionally, the agreement between
the Combined Company's service users for allocation of these risks will be in
electronic form, and, while digitally signed, will not be manually signed and,
therefore, may not be enforceable. Finally, the Combined Company may be
subject to merchant fraud, including such actions as inputting false sales
transactions or false credits. The Combined Company intends to manage all of
these risks through risk management systems, internal controls, and system
security, but there can be no assurance that these practices or reserves will
be sufficient to protect the Combined Company from returned transactions,
merchant fraud, or erroneous transmissions that could have a material adverse
effect on the business, financial condition, or operating results of the
Combined Company.
System Interruption and Security Risks; Possible Liability; Lack of
Insurance. Nucleus' operations depend on its ability to protect its system,
which is located at a single site, from interruption by damage from fire,
earthquake, power loss, telecommunications failure, unauthorized entry or
other events beyond its control specifically, (i) Nucleus' telecommunications
resale operations could be adversely affected by its telecommunications
carrier experiencing system problems and its inability to remedy such problems
on a timely
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<PAGE>
basis, (ii) Nucleus' computer integration and installation operations could be
adversely affected by a telecommunications failure with respect to customers
using Nucleus' 800 number to request service, resulting in Nucleus' inability
to react to customer service requirements, and (iii) Nucleus' internet access
and its ability to provide services to customers over the internet could be
adversely affected if Nucleus' internet service provider experiences
infrastructure failure or transmission problems and is unable to remedy such
problems on a timely basis. There can be no assurance that Nucleus' existing
and planned precautions of redundant systems, regular data backups, and other
procedures are adequate to prevent any major system outage or data loss.
Moreover, unanticipated problems may cause such occurrences. In spite of
the implementation of security measures, Nucleus' and the Combined Company's
infrastructure may also be vulnerable to computer viruses, hackers, or similar
disruption intentionally or unintentionally caused by its customers or other
Internet users. Damage or failure causing interruption of the Combined
Company's operations could have a material adverse effect on its business,
financial condition, or operating results. Computer break-ins and other
disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the individuals, businesses, and
financial institutions utilizing the Combined Company's services. This may
result in significant liability, as well as deter potential customers from
using its services.
Persistent problems continue to affect public and private data networks.
For example, in a number of networks, hackers have bypassed firewalls and
misappropriated confidential information. The Combined Company has not
historically experienced problems with respect to hackers, intends to be
careful with respect to its hiring decisions and will maintain controls
through software design, security systems, and accounting procedures in order
to prevent unauthorized employee access to user accounts. However, the
possibility exists that an employee of the Combined Company could divert
users' funds while they are in the Combined Company's control. This occurrence
would also expose the Combined Company to a risk of loss or litigation and
potential liability to users. Neither AGV nor Nucleus currently have product
liability insurance to protect against these risks, and there can be no
assurance that such insurance will be available to the Combined Company on
commercially reasonable terms, if at all.
Dependence on the Internet. The Combined Company's operating performance
will depend, in large part, on the emergence of the Internet as a widely used
commercial marketplace. However, the Internet may not prove to be a viable
commercial marketplace because of inadequate development of the necessary
infrastructure (e.g., reliable network backbone), untimely development of
complementary products (e.g. high-speed modems), delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, and increased government regulation. There also can be no
assurance that the Internet infrastructure will continue to be able to support
the increased demand place on it by significant growth in the number of users
and level of use. If the necessary infrastructure or complementary products
are not developed, or if the Internet does not become a viable commercial
marketplace, the business, operating results, and financial condition of the
Combined Company will be materially adversely affected.
Stock Ownership Following the Merger. The following table presents the
equity interest of AGV and Nucleus stockholders on a proforma combined basis
as of March 8, 1998, based on the Exchange Ratio.
<TABLE>
<CAPTION>
Shares %
--------- ------
<S> <C> <C>
Current AGV Stockholders(1).................................... 1,129,827 17.6%
Nucleus Stockholder............................................ 5,307,109 82.4%
Total Pro Forma Combined Company Stockholders.................. 6,436,936 100.0%
</TABLE>
- --------
(1) Does not include outstanding warrants to purchase an aggregate of 367,050
shares of AGV Common Stock. If these shares were assumed to be
outstanding, current AGV stockholders would own an aggregate of 1,496,877
shares of AGV Common Stock, or 22.0% of the Combined Company, and the
Nucleus stockholder would continue to own 5,307,109 shares of AGV Common
Stock, or 78.0% of the Combined Company.
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Following the Merger, Nucleus' sole stockholder will beneficially own 82.4%
of the outstanding shares of AGV Common Stock (excluding the warrant exercises
set forth in note (1) above). As a result, John C. Paulsen, as owner of the
sole stockholder of Nucleus, will have control over the outcome of all matters
submitted to AGV's stockholders for approval, including the election of
directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying, preventing or
deterring a change in control of AGV. See "AGV--Beneficial Ownership of AGV
Common Stock" and "The Merger--The Merger Agreement--Board Representation,"
respectively.
Dependence on Third Party Transmission and Billing Facilities. TelOne does
not currently own the transmission facilities necessary to complete the
transmission of, and bill for, long distance telephone calls. Therefore,
TelOne's direct-dial long distance telephone business is dependent on
contractual agreements with non facilities-based carriers for the transmission
of, and billing for, calls. TelOne believes that it has sufficient access to
transmission facilities and billing services at competitive rates and expects
to have such access in the future. However, there can be no assurance that
transmission facilities and billing services will be available in the future
at rates necessary to enable TelOne to achieve profitability.
Technological Changes And New Services. The telecommunications industry has
been, and continues to be, characterized by steady technological change,
frequent new service introductions, and evolving industry standards. TelOne
believes its future success will depend on its ability to anticipate such
changes and market and offer, on a timely basis, responsible services that
meet the requirements of these evolving industry standards. There can be no
assurance that TelOne will have sufficient resources to make the financial
investments necessary to acquire new technology or to introduce new services
that would satisfy an expanded range of customer needs.
Service Interruptions And Equipment Failures. Nucleus' business requires
transmission and switching facilities that are operable 24 hours a day, 365
days a year. Service providers, such as Nucleus, may, on occasion, experience
temporary service interruptions or equipment failures resulting, in some
cases, from causes beyond its control. Any such event would impair the
Combined Company's ability to provide service for its customers and could have
a material adverse effect on the Combined Company's business.
Customer Attrition. TelOne believes a high level of customer attrition is
commonplace throughout the telecommunications industry. TelOne has not, to
date, experienced significant attrition, TelOne's historical level of customer
attrition may not be indicative of future levels, and there can be no
assurance that any steps taken to counteract increased customer attrition
would be effective.
Risk of Carrier Failure. As a long distance reseller, TelOne is dependent
upon its underlying telecommunications carrier. Should the underlying
telecommunications carrier fail to provide service to TelOne, TelOne's
business would be severely disrupted as many of TelOne's customers would elect
to not continue utilizing TelOne's services.
Limitation on Use of Net Operating Loss Carryforwards. AGV has net
operating loss carryforwards available to reduce future federal taxable income
aggregating, approximately $3,051,000 as of December 31, 1998, which expire
from the years 2002 through 2013. See Note 5 to AGV's Consolidated Financial
Statements. As a result of the Merger and the related AGV share issuances, a
change in ownership is expected and therefore the use of such carryforwards
may be limited. Subsequent changes in AGV's ownership may cause further
limitations on the annual amounts of the carryforwards which can be utilized.
No Assurance That AGV or Its Stockholders Will Realize Anticipated Benefits
from the Merger. The AGV Board and the Nucleus Board have given careful
consideration to the Merger and believe it to be in the best interest of their
respective stockholders. However, the Merger involves the combination of
certain aspects of two companies that have operated independently.
Accordingly, there can be no assurance that Nucleus can be successfully
integrated into AGV or that AGV and its stockholders will ultimately realize
any of the anticipated benefits of the Merger.
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<PAGE>
No Investment Banking Opinion. No investment banking opinion or opinion
from any third party has been obtained in connection with the Merger.
Consequently, stockholders can be given no assurance as to the fairness of the
Merger from a financial standpoint.
Forward-Looking Statements. Certain statements contained in this Proxy
Statement, including without limitation statements containing the words
"believes," "anticipates," "intends," "expects" and words of similar import,
constitute--"forward-looking statements" involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of AGV or Nucleus or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business condition, both
nationally and in the regions in which AGV or Nucleus operate; competition;
changes in business strategy or development plans; the ability to attract and
retain qualified personnel; the lack of assurance that the cost savings,
growth opportunities and synergies expected from the Merger will be achieved;
the lack of assurances as to the future performance of the Combined Company;
the availability and terms of capital to fund the expansion of the Combined
Company's business; and other factors referenced in this Proxy Statement.
Certain of these factors are discussed in more detail elsewhere in this Proxy
Statement, including without limitation under the captions "Summary," "Risk
Factors" and "Unaudited Pro Forma Condensed Combined Financial Information."
GIVEN THESE UNCERTAINTIES, STOCKHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. Each of AGV and Nucleus disclaim
any obligation to update any such factors or to publicly announce the result
of any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
INTRODUCTION
General
This Proxy Statement is being furnished to the stockholders of AGV in
connection with the solicitation of proxies by the AGV Board from holders of
outstanding shares of AGV Common Stock for use at the AGV Meeting. At the AGV
Meeting, AGV stockholders will be asked to consider and vote upon (i) the
approval of the Merger, the Merger Agreement, and the issuance of shares of
AGV Common Stock in connection with the Merger and (ii) the election of three
directors for the ensuing year.
The information in this Proxy Statement with respect to Nucleus has been
supplied by Nucleus and the information with respect to AGV has been supplied
by AGV.
The principal executive offices of AGV are located at 3650 Austin Bluffs
Parkway, Suite 138, Colorado Springs, Colorado 80918 and its telephone number
is (719) 548-1616. The principal executive offices of Nucleus are located at
150 North Michigan Avenue, Suite 3610, Chicago, Illinois 60601, and its
telephone number is (312) 683-9000.
Merger--Consideration
Upon consummation of the Merger, each outstanding share of Nucleus Common
Stock (other than shares held by Nucleus as treasury stock or owned by AGV)
will be converted into the right to receive 5,307.109 shares of AGV Common
Stock (the "Exchange Ratio"). The Exchange Ratio is subject to proportional
adjustment in the event that any stock dividend, subdivision,
reclassification, recapitalization, split-up combination, exchange of shares
or the like occurs between the date of this Proxy Statement and the Effective
Time.
Voting and Proxies
Holders of record of shares of AGV Common Stock at the close of business on
March 8, 1999, (the "Record Date") will be entitled to vote at the Meeting and
at any adjournment or postponement thereof. At the close of business on the
Record Date, AGV had 1,129,827 shares of its Common Stock outstanding.
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<PAGE>
The presence, either in person or by proxy, of the holders of at least a
majority of the outstanding shares of AGV Common Stock entitled to vote is
necessary to constitute a quorum at the Meeting. The holder of each
outstanding shares of AGV Common Stock is entitled to one vote per share on
the proposal to approve and adopt the Merger Agreement. The affirmative vote
of the holders of a majority of the outstanding shares of AGV Common Stock
present or represented at the AGV Meeting and entitled to vote is required for
approval and adoption thereof. On such matter, a majority of the quorum must
actually vote in favor of the proposal for it to pass, and therefore, although
both broker non-votes and abstentions will be counted in determining if a
quorum is present, broker non-votes and abstentions will have the same legal
effect as votes "against" the matter even though the stockholder or interested
parties analyzing the results of the voting may interpret such a vote
differently. On the vote to elect directors, each stockholder is entitled to
five votes for each share of AGV Common Stock he owns, and such stockholder
may cumulate his votes to vote for one, two, three, four or five directors.
The five nominees for election as directors at the Meeting who receive the
greatest number of votes cast for the election of directors at that meeting by
the holders of the AGV Common Stock entitled to vote at the meeting shall
become directors of AGV.
At the Record Date, directors and executive officers of AGV as a group (2
persons) beneficially owned 602,520 shares of AGV Common Stock representing
approximately 53.3% of the total outstanding shares of AGV Common Stock
(excluding shares subject to warrants held by such persons). See "AGV--
Beneficial Ownership of AGV Common Stock." Management of AGV believes that
both of its directors and executive officers who own shares of AGV Common
Stock intend to vote in favor of the Proposals.
All shares of AGV Common Stock represented by properly executed proxies
will be voted at the Meeting in accordance with the directions indicated on
the respective proxies unless the proxies have been previously revoked. Unless
contrary direction is given, all AGV shares represented by such proxies will
be voted FOR the Merger, and FOR the nominees for election as directors, and
in the proxy holder's discretion as to such other matters incident to the
conduct of the Meeting as may properly come before stockholders at the
Meeting.
The AGV Board unanimously recommends that stockholders vote FOR both of the
Proposals and all nominees for election of directors.
If any other matters are properly presented at the Meeting for action,
including a question of adjourning the meeting from time to time, the persons
named in the proxies and acting thereunder will have discretion to vote on
those matters in accordance with their best judgment. The Meeting may be
adjourned and additional proxies solicited if at the time of the Meeting the
vote necessary to approve the Proposals has not been obtained. Any adjournment
of the Meeting will require the affirmative vote of the holders of at least a
majority of the AGV shares present or represented at the Meeting (regardless
of whether those shares constitute a quorum).
A stockholder executing and returning a proxy has the power to revoke the
proxy at any time before it is voted. A stockholder who wishes to revoke a
proxy can do so by executing a later-dated proxy relating to the same shares
and delivering it to the Secretary of AGV prior to the vote at the Meeting or
by appearing in person at the Meeting and voting in person the shares to which
the proxy relates. Any written notice revoking a proxy should be sent to
Nucleus, Inc., 3650 Austin Bluff Parkway, Suite 138, Colorado Springs,
Colorado 80918.
Solicitation
AGV will bear its own expenses in connection with this solicitation,
including the cost of preparing and mailing this Proxy Statement. In addition
to solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of AGV, respectively, in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodian, nominees and fiduciaries and AGV will reimburse
such custodians, nominees and fiduciaries and AGV will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
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THE MERGER
The following discussion summarizes the proposed Merger. Statements made in
this Proxy Statement should be read in conjunction with the Merger Agreement,
the full text of which is contained in Appendix A hereto and incorporated
herein by reference. Other than statements of historical facts, statements
made in this section including statements as to the benefits expected to
result from the Merger and as to the future financial performance and analyses
performed by each Company's Board of Directors are forward looking statements.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of factors, including those set forth
in "Risk Factors" and elsewhere in this Proxy Statement.
DESCRIPTION OF THE MERGER
General
Upon consummation of the Merger, Nucleus Holding Corporation ("Nucleus")
will merge with and into AGV. The sole stockholder of Nucleus will receive
5,307.109 shares of AGV Common Stock in exchange for each share of Nucleus
Common Stock. The Merger will be effective after satisfaction (absent waivers)
of all conditions contained in the Merger Agreement, including the approval of
the Merger by the stockholders of AGV.
Background of the Merger
Starting in July, 1998, John C. Paulsen, Nucleus' Chairman of the Board,
President and Chief Executive officer, held informal, preliminary discussions
with various computer companies to ascertain whether any of such companies had
an interest in a strategic collaboration with Nucleus, including a merger,
equity investment or joint venture.
On September 28, 1998, Stephen Calk, Mark Fera, John Paulsen, and an
acquaintance of Steven Walker, met at an informal social occasion. The
acquaintance mentioned his friendship with Steven and Christopher Walker, and
told Mr. Paulsen that the Walkers were also in the computer business. After
discussing the similarities of the two businesses, John Paulsen asked the
acquaintance if he could be introduced to the Walkers.
On September 29, 1998, the acquaintance introduced John Paulsen and Stephen
Calk to Steven Walker via a conference call late in the afternoon. During the
conference call, John Paulsen and Steven Walker discussed the computer
industry and the similar direction the two companies were heading. After
discussing the redundant systems the two companies were deploying, the overlap
of personnel, and the benefits of working together, John Paulsen and Steven
Walker decided to explore the feasibility of a merger. An oral confidentiality
agreement was reached and an exchange of information was arranged. Both
companies briefed their respective board of directors on the telephone
conversation, and each of AGV's and Nucleus' respective board of directors
recommended the continuation of discussions with the other company and the
commencement of negotiations for a merger agreement.
On September 30, 1998, John Paulsen phoned Steven Walker to discuss the
following items regarding AGV:
. Wal-Mart arrangement
. Hot Mail arrangement
. Store location and physical attributes
. Personnel of both companies
. Market place and direction
. Corporate goals
. Shareholder bases
. Board representation
. Litigation
. Auditors
. Suppliers
. Debtors
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Later in the day, Steven Walker and John Paulsen had another telephone
conversation in which each others business background was discussed and
preparations were made to submit additional material to each other. From
October 3, 1998 to October 5, 1998, multiple telephone conversations between
AGV and Nucleus were held to discuss the merger, negotiation points and due
diligence information.
On October 4, 1998, Nucleus held a special meeting of its Board of
Directors to discuss the proposed merger negotiations. It was agreed that the
revenue of each of the businesses would be the primary determinant in valuing
the transaction. On October 7, 1998, John Paulsen flew to Colorado to meet and
negotiate the transaction with Steven Walker. The meeting resulted in an
agreement to the terms of a contract of merger. It was agreed that by pooling
the businesses Nucleus would obtain a 68% interest in the Combined Company.
See "Valuation" below. Shortly after the meeting, Mr. Paulsen directed his
outside counsel to begin drafting an agreement of merger, and directed his
controller to begin a due diligence investigation on AGV.
On October 10, 1998, Nucleus' lawyers transmitted draft merger documents to
both companies. Both companies began reviewing the merger documents while due
diligence continued.
On October 12, 1998, the AGV Board held a special meeting at which it heard
presentations by AGV's management concerning the Merger and the proposed
terms. AGV management reviewed with the AGV Board the status of the
negotiations and the rationale for pursuing the Merger. AGV's counsel reviewed
with the AGV Board a draft of the Merger Agreement and AGV Board members
provided AGV's management and counsel with comments on the draft of the Merger
Agreement.
Between October 12, 1998, and October 22, 1998, management of AGV and
Nucleus and their respective counsel finalized the Merger Agreement and the
status of the negotiations was periodically reported to the AGV and the
Nucleus Boards. The respective AGV and Nucleus Boards reviewed the proposed
terms of the Merger during special meetings held on October 23, 1998, by
telephone. The Nucleus Board was advised that a formal, written offer would be
submitted by AGV on the following day. At the continuation of the meetings on
October 24, 1998, management of both companies and their legal counsel
continued discussions on a variety of matters relative to the Merger and its
structure as well as the terms of the Merger Agreement. At the conclusion of
these special meetings, both boards unanimously approved the terms of the
Merger Agreement and the transactions contemplated thereunder.
On November 2, 1998, Steven Walker notified John Paulsen that the Wal-Mart
deal had been indefinitely put on hold. Thereafter, Nucleus' Board of
directors met and discussed the Wal-Mart situation and how it would effect the
combined companies. The Board agreed that the deal should be restructured in
that Nucleus should receive an additional 10% of the Combined Company based on
the risk contingency.
On November 5, 1998, the Board of Directors of both companies met to
discuss the amended Merger Agreement which changed the ratio from 68% to 78%
of the stock of the Combined Company to be owned by Nucleus. On November 7,
1998, the Board of Directors of AGV and Nucleus approved the Merger Agreement,
as amended.
Valuation
Valuation was determined jointly by both companies. Revenue was compared
for each company for the nine-months ended September 30, 1998. As a result of
the comparison, it was determined that Nucleus would have generated 78% of the
total company revenue for the nine-months ended September 30, 1998, and that
AGV would have generated 22% of the total company revenue for the nine-months
ended September 30, 1998.
Next, Nucleus' telecom and computer division were each analyzed separately,
along with AGV's computer division. The analysis of the divisions follows:
Nucleus--Telcom Operations. Both companies believed that Nucleus' telecom
operations division was profitable and had an established customer base;
however, this division was not envisioned to grow rapidly in the future.
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Nucleus--Computer Operations. This division of Nucleus first generated
revenue in June, 1998. Both companies believed that this division had a good
marketing program and was building customer base and professional staff at a
satisfactory pace. However, due to start-up costs, this division had a
disproportionate amount of operating expenses.
AGV--Computer Operations. Both companies believed that AGV was an
established provider of computer equipment over the Internet. The companies
further believed that a web site developed and promoted by Hotmail had the
potential to further increase revenues and margins.
Conclusion. Based on these assumptions, both companies believed that
Nucleus would have generated 72% of the total company revenue for the period
encompassing the last quarter of 1998 and the first quarter of 1999, and that
AGV would have generated 28% of the total company revenue generated for the
same period. This comparison of pro-forma revenues was a prime component in
determining the merger ratio. AGV's strong established computer business led
both companies to determine that the 72% / 28% split should be adjusted to 68%
/ 32%. As discussed above, the ratio was further adjusted based upon the Wal-
Mart situation.
Joint Reasons for the Merger
The Board of Directors of AGV and Nucleus have each determined that,
compared to their respective companies on a stand-alone basis, combining the
companies would have the potential to realize improved long-term operating and
financial results. Additionally, AGV and Nucleus believe that combining
management talent, business systems and processes, and by integrating
complementary lines of business, will enable a combined company to be more
competitive in today's marketplace.
The Combined Company intends to continue the computer business of Nucleus
and AGV and the telecommunications business of Nucleus. The computer business
of the Combined Company will comprise 4 categories, which have been carried
out to date by Nucleus: on-premise sales; internet build-to-order sales; on-
line help; and express repair service. These businesses will be continued by
the Combined Company. In addition to continuing the computer business,
following the Merger, the Combined Company intends to begin purchasing and
consolidating other computer service companies, build-to-order computer
companies, computer hardware companies, and telecom companies. Neither AGV nor
Nucleus currently have any plans or proposals to acquire any such companies.
Each company's Board of Directors has identified a number of additional
potential mutual benefits of the merger that they believe will contribute to
the success of AGV/Nucleus. These potential benefits include, principally, the
following:
. With its comprehensive service offerings, AGV/Nucleus will have the
opportunity to increase its market penetration with existing customer
accounts, particularly those who need or desire to obtain integrated
technology solutions from a single source.
. The Combined Company should be able to use its increased size to develop
brand recognition to support AGV/Nucleus efforts to broaden its
marketing reach, increase the demand for its services, and win new
customers accounts;
. The combination should accelerate the two companies' efforts to offer a
full spectrum of integrated technology and communications services,
giving AGV/Nucleus a strong position for selling its services to clients
who the companies believe are increasingly demanding seamless service
with respect to complete systems and communications needs;
. The two companies complementary service offerings and limited overlap of
existing customers provide the opportunity to cross-sell services in the
areas of their respective strengths, thereby creating the potential for
increased revenue per customer;
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. The diversification of service offerings and customer base, and the
increased scale of the business should give AGV/Nucleus improved
stability, with reduced risk of volatility of financial performance;
. The creation of a larger organization and a higher market profile, will
correspondingly increase marketing capability, and is expected to
increase the Combined Company's sales.
. The combined experience, size, and breadth of service offerings of
AGV/Nucleus are expected to allow AGV/Nucleus to respond more quickly
and effectively to increased competition and market demands in an
industry experiencing rapid innovation and change.
. The strength of the combined management team will help AGV/Nucleus as it
seeks to establish a leadership position in its core competencies.
. The potential for cost savings on a percentage-of-revenue basis, through
integration of facilities and other economies of scale, could yield
improved operating results for AGV/Nucleus.
AGV and Nucleus have each identified additional separate reasons for the
Merger, which are discussed below. However, each Board of Directors recognizes
that the potential benefits of the Merger may not be realized.
AGV's Reasons for the Merger
The AGV Board unanimously approved the Merger as fair to, and in the best
interests of the Stockholders of AGV. The AGV Board believes that following
the Merger, AGV should emerge a stronger company because of the technological
expertise and commercial potential of the Combined Company.
In addition to the anticipated joint benefits described above, the AGV
Board believes that the following are additional reasons the merger will be
beneficial to AGV and for stockholders of AGV to vote FOR the Merger:
. Combining with Nucleus will establish a distribution channel through
which AGV can sell computers
. The Merger will provide AGV with the experience necessary to assemble
computers internally rather than having independent third parties
assemble systems
. The Merger will provide AGV with the ability to diversify its revenue
and customer base by servicing the computers it sells
. AGV shareholders will be offered a greater opportunity to realize value
from their investment through the Combined Company, as opposed to the
value proposition with AGV as a stand alone entity
. AGV has historically been unable to raise significant amounts of capital
to fund its operations and AGV's Board of Directors believes that the
Company will have much greater access to sources of capital as a result
of the Merger with Nucleus.
In the course of its deliberations, the AGV Board of Directors reviewed a
number of additional factors relating to the Merger, including, but not
limited to, the following: (i) the volatility of the price of AGV's common
stock, (ii) historical information concerning AGV's and Nucleus' respective
businesses and financial operations, (iii) an evaluation of AGV on a stand
alone basis compared to combining operations with another firm, (iv) the loss
of revenue associated with the termination of the Wal-Mart agreement, (v) the
outcome of due diligence performed by AGV's accountants and legal advisors,
(vi) the belief that the terms of the Merger were negotiated in the best
interest of AGV's shareholders and that further negotiation would not result
in a higher exchange ratio due to the termination of the Wal-Mart agreement,
and (vi) other risks described above under "Risk Factors".
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The AGV Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the merger, including, but
not limited to: (i) the risk that the potential benefits sought in the Merger
might not be fully realized; (ii) the possibility that the Merger might not be
consummated and the effect of public announcement of the Merger on AGV's sales
and operating results; (iii) the significant risks related to integrating two
companies, including risks related to duplicate facilities and personnel; (iv)
the risk that, despite the efforts of AGV/Nucleus, key technical sales,
support, and management personnel might not remain employed by AGV/Nucleus.
The AGV Board believes that certain of these risks were unlikely to occur
or unlikely to have a material impact on AGV/Nucleus, while others could be
avoided or mitigated by AGV or by AGV/Nucleus and that, overall, the risks
associated with the merger were outweighed by the potential benefits of the
Merger.
The foregoing discussion of the information and factors considered by the
AGV Board is not intended to be exhaustive but is believed to include all
material factors considered by the AGV Board. In view of the wide variety of
factors, both positive and negative, considered by AGV's Board of Directors,
the Board did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered. These factors were
considered in their entirety by AGV's Board in the course of its deliberations
and discussions regarding the Merger. After carefully considering all of the
factors set forth above, AGV's Board of Directors determined that Merger
exchange ratio was appropriate, that the Merger was in the best interests of
AGV and its stockholders, and that AGV should proceed with the Merger at this
time.
The AGV Board is not in the business of providing business valuations and
did not obtain the opinion of an investment bank or other independent third
party as to the fairness of the Merger to AGV and its stockholders from a
financial point of view because such action would have been expensive and time
consuming.
Nucleus' Reasons for the Merger
The Nucleus Board unanimously approved the Merger Agreement. In arriving at
its decision to approve the Merger, the Nucleus Board considered a number of
factors, including the reasons set forth under "--Joint Reasons for the
Merger."
In particular, Nucleus' Board of Directors believes that the following are
reasons that the Merger is favorable for Nucleus:
. Combining with AGV will provide Nucleus with access to a public security
to use as currency in purchasing companies in its aggressive acquisition
strategy
. The Merger will enable the Combined Company to include one or more
members of AGV's Board of Directors to provide vision as to the computer
industry
. Combining with AGV will enable Nucleus to market its products to AGV's
customer base and distribution channel
. Combining with AGV may provide an opportunity to re-establish some form
of alliance with Wal-Mart.
In assessing the Merger, the Nucleus Board considered a number of sources
of information, including (i) historical information concerning the respective
businesses, financial performance, condition, operations, and results of
operations, technology, management style, competitive position, trends and
prospects of AGV and Nucleus and the Nucleus Board's assessment of that
information; (ii) SEC filings by AGV; (iii) current and historical market
prices, volatility and trading data for AGV; (iv) information and advice based
on the results of due diligence investigations by members of the Nucleus Board
and management, and Nucleus' legal, financial, and accounting advisors
concerning the business, technology, products, operations, properties, assets,
financial condition, operating results, and prospects of AGV, trends in AGV's
business and financial results and the capabilities of AGV's management team.
25
<PAGE>
The Nucleus Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the merger, including, but
not limited to: (i) the risk that the potential benefits sought in the Merger
might not be fully realized; (ii) the possibility that the Merger might not be
consummated and the effect of public announcement of the Merger on (a)
Nucleus' sales and operating results, (b) Nucleus' ability to attract and
retain key management, marketing, and technical personnel; (iii) the
significant risks related to integrating two companies, including risks
related to duplicate facilities and personnel; (iv) the risk that, despite the
efforts of AGV/Nucleus, key technical sales, support, and management personnel
might not remain employed by AGV/Nucleus.
The Nucleus Board believes that certain of theses risks were unlikely to
occur or unlikely to have a material impact on AGV/Nucleus, while others could
be avoided or mitigated by Nucleus or by AGV/Nucleus, and that, overall, the
risks associated with the Merger were outweighed by the potential benefits of
the Merger.
The foregoing discussion of the information and factors considered by the
Nucleus Board is not intended to be exhaustive but is believed to include all
material factors considered by the Nucleus Board. In view of the variety of
factors considered in connection with its evaluation of the Merger, the
Nucleus Board did not find it practicable to, and did not quantify or
otherwise assign relative weight to, the specific factors considered in
reaching its determination. In addition, individual members of the Nucleus
Board may have given different weight to different factors.
None of the foregoing factors or groups of factors had more prominence than
any other factor or group of factors in the decision of the Nucleus Board to
approve the Merger, the Merger Agreement and the transactions contemplated
thereunder.
The Nucleus Board did not obtain the opinion of an investment bank or other
independent third party as to the fairness of the transaction to Nucleus and
its stockholder from a financial point of view.
Accounting Treatment
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, upon
consummation of the Merger, the historical financial statements of AGV will be
restated to include the historical account balances of Nucleus as if the two
companies had been one for all periods presented. However, consummation of the
Merger is not conditioned upon the confirmation from any independent
accountant to the effect that the Merger will qualify as a pooling of
interests in accordance with generally accepted accounting principles.
The Merger Agreement provides that it is a condition to the obligations of
AGV and Nucleus that each person who is an affiliate of Nucleus will execute a
written agreement on or before the Effective Time of the Merger to the effect
that such person will not transfer any shares of AGV Common Stock prior to the
date that AGV publishes financial statements that reflect at least 30 days of
post-Merger combined operations of AGV and Nucleus (which agreements relate to
the ability of AGV to account for the Merger as a pooling of interests). AGV
has agreed to use its commercially reasonable efforts to file with the
Commission financial results of the Combined Company covering a period of at
least 30 days following the Effective Time within forty-five (45) days after
the last day of the first full month following the Effective Time. AGV may
delay this filing under certain circumstances.
Certain Federal Income Tax Consequences
Management of AGV and Nucleus believe that the Merger will constitute a
tax-free reorganization within the meaning of a statutory merger as described
in Section 368(a)(1)(A) of the Code. However, no opinion has been received
with respect to this matter.
Assuming qualification as a tax-free reorganization under the Code, (i) no
gain or loss will be recognized by AGV or its stockholders as a result of the
Merger, (ii) no gain or loss will be recognized by Nucleus or its
26
<PAGE>
stockholder who receives AGV Common Stock in the Merger in exchange for its
shares of Nucleus Common Stock, (iii) the basis of the shares of AGV Common
Stock to be received by the Nucleus stockholder in the Merger will be the same
as the basis of the shares of Nucleus Common Stock surrendered in exchange
therefor, and (iv) the holding period of the shares of AGV Common Stock to be
received by the Nucleus stockholder in the Merger will include the holding
period of the shares of Nucleus Common Stock exchanged therefor, provided that
all shares are held as capital assets of the Nucleus stockholder at the
Effective Time.
Because no opinion of counsel has been received, there can be no assurance
that the Merger will constitute a tax-free reorganization or that any of the
favorable tax treatments pursuant to a tax-free reorganization will be
available to the Nucleus stockholder.
In the event that the Merger did not constitute a tax-free reorganization,
any gain or loss recognized by the surviving company based on the acquisition
of AGV stock by Nucleus stockholder would be considered taxable to the AGV
shareholders. Additionally, if the Merger did not constitute a tax-free
reorganization, the AGV stockholders may recognize a gain or loss based on the
difference between the fair market value of the stock received and the tax
basis in the stock foregone.
Interests of Certain Persons in the Merger
In considering the recommendation of the AGV Board and the decision of the
Nucleus Board with respect to the Merger, stockholders should be aware that
Steven H. Walker and Christopher S. Walker, two of the current directors of
AGV, beneficially own, without taking account of the exercise of certain
warrants beneficially owned by such individuals, approximately 43.0% and
10.3%, respectively, of the outstanding AGV Common Stock, and immediately
following the Merger, Steven H. Walker and Christopher S. Walker will
beneficially own, without taking account of the exercise of such warrants,
approximately 7.5% and 1.8% of the outstanding AGV Common Stock. The AGV Board
and the Nucleus Board were aware of these interests when they considered
approval of the Merger Agreement and the transactions contemplated hereby,
including the Merger.
In considering the decision of the Nucleus Board with respect to the
Merger, stockholders should be aware that John C. Paulsen, President and Chief
Executive Officer of Nucleus, beneficially owns, through his ownership of
CapitalOne, 100% of the outstanding Nucleus stock, and immediately following
the Merger, Mr. Paulsen will beneficially own 82.4% of the outstanding AGV
stock. In addition, pursuant to the Merger Agreement, Mr. Paulsen and two
persons designated by Mr. Paulsen have been nominated as directors of AGV. See
"--Board Representation." The AGV Board and the Nucleus Board were aware of
these interests when they considered approval of the Merger Agreement and the
transactions contemplated hereby, including the Merger.
The Merger Agreement provides that following the Merger AGV will indemnify,
defend and hold harmless to the full extent permitted by Nevada Law each
officer, director and agent of Nucleus against all losses, claims, damages and
actions resulting from their service as directors, officers or agents of
Nucleus prior to the Merger, including, without limitation all losses, claims,
damages and actions arising out of the negotiation, execution and delivery of
the Merger Agreement and the consummation of the Merger.
Federal Securities Law Consequences
The shares of AGV Common Stock received by the Nucleus stockholder in the
Merger may be resold only in transactions permitted by the resale provisions
of Rule 144 promulgated under the Securities Act or as otherwise permitted
under the Securities Act. The obligations of AGV to consummate the Merger are
conditioned upon each Nucleus affiliate executing a written agreement to the
effect that such person will not offer or sell or otherwise dispose of any of
the shares of AGV Common Stock issued to such person in or pursuant to the
Merger in violation of the Securities Act or the rules and regulations of the
Commission promulgated thereunder.
27
<PAGE>
THE MERGER AGREEMENT
General
The Merger Agreement and certain related matters are summarized below. The
following summarizes the material terms of the Merger Agreement. This summary
does not purport to be a complete statement of the terms and conditions of the
Merger and should be read in conjunction with the Merger Agreement, which is
set forth as Appendix A and is incorporated herein by reference.
All stockholders are urged to read the Merger Agreement in its entirety.
The Merger
The Merger Agreement provides that subject to the adoption of the Merger
Agreement by the stockholders of AGV and the satisfaction or waiver of the
other conditions to the Merger, Nucleus will be merged with and into AGV.
Following consummation of the Merger, Nucleus will no longer exist, and AGV
will be the surviving corporation.
Conversion of Shares
At the time that the Merger becomes effective:
(i) each share of Nucleus Common Stock outstanding immediately prior to
the Effective Time will be converted at the Exchange Ratio into the right
to receive 5,307.109 fully-paid validly issued and nonassessable shares of
AGV Common Stock;
(ii) each share of Nucleus Common Stock held by Nucleus as treasury
stock or owned by AGV immediately prior to the Effective Time shall be
canceled and retired and all rights in respect thereof shall cease to exist
without any conversion thereof or payment therefor; and
(iii) each warrant to purchase a share of AGV Common Stock ("AGV
Warrant") outstanding at and as of the Effective Time will remain
outstanding and in full force and effect.
Effective Time
The Merger will become effective at such time as the Certificate of Merger
and Articles of Merger are duly filed with the Secretary of State of the State
of Illinois and the Secretary of State of the State of Nevada or at such later
time as specified in the Certificate of Merger and Articles of Merger (the
"Effective Time"). The filing of the Certificate of Merger and the Articles of
Merger will be made as soon as practicable after all conditions set forth in
the Merger Agreement have been satisfied or waived. Assuming all conditions to
consummation of the Merger have been satisfied or waived the Effective Time
will occur as soon as practicable following the Meeting. Any delay in the
satisfaction or waiver of the conditions to the Merger will delay the
Effective Time. Either party may terminate the Merger Agreement in certain
circumstance or if the Effective Time has not occurred by April 30, 1999. See
"Termination."
Board Representation
Pursuant to the Merger Agreement, Mr. Paulsen and four persons designated
by Mr. Paulsen have been nominated as directors of AGV. If all the nominees
for election to the AGV Board are elected and the Merger is consummated, the
members of the AGV Board will be John Paulsen, Stephen Calk (nominated by Mr.
Paulsen), Mark Fera (nominated by Mr. Paulsen), J. Theodore Hartley (nominated
by Mr. Paulsen), Jeff Wescott (nominated by Mr. Paulsen) and Steven Walker and
Adriann C. Belinne (current directors).
Exchange of Certificate
Illinois Stock Transfer Company of Chicago, Illinois will act as exchange
agent (the "Exchange Agent") for the exchange of the certificate representing
shares of Nucleus Common Stock ("Certificate") for the
28
<PAGE>
certificate representing shares of AGV Common Stock. Promptly after the
Effective Time, AGV shall make available to the Exchange Agent the AGV Common
Stock issuable to the Nucleus stockholder in the Merger. As soon as practicable
after the Effective Time, the Exchange Agent will mail to the former holder of
record of shares of Nucleus Common Stock instructions for surrendering its
Certificate in exchange for a certificate or certificates representing AGV
Common Stock.
Upon surrender of the Certificate for cancellation to the Exchange Agent
together with the letter of transmittal duly executed, the holder of the
Certificate will be entitled to receive in exchange a certificate for the
number of whole shares of AGV Common Stock represented by the Certificate so
surrendered. The Certificate surrendered will then be cancelled. In the event
of a transfer of ownership of Nucleus Common Stock which is not registered in
the transfer books of Nucleus or its transfer agent, AGV Common Stock may be
delivered to a transferee if the Certificate representing such shares is
presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
At and after the Effective Time, the sole stockholder of Nucleus will be
treated as a stockholder of record of AGV, but no dividends will be paid to the
holder of the Nucleus Certificate until the Certificate has been surrendered at
which time the amount of any dividends which theretofore became payable but
which were not paid with respect to the number of shares of AGV Common Stock
represented by the Certificate will be paid. After the Effective Time, there
will be no further registration of transfers on the stock transfer books of
Nucleus or its transfer agent of shares of Nucleus Common Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented for any reason, they will be canceled and
exchanged as described above.
Conditions
The obligations of AGV to consummate the Merger are subject to the
satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of Nucleus contained in the Merger Agreement at
and as of the date of closing under the Merger Agreement (the "Closing Date");
(ii) Nucleus having performed and complied with all of its covenants contained
in the Merger Agreement in all material respects on or before the Closing Date;
(iii) AGV having received from each person or entity who may be deemed an
affiliate of Nucleus a duly executed affiliates agreement, which such affiliate
agrees not to offer to sell, sell or otherwise dispose of any shares of AGV
Common Stock issued in the Merger, except pursuant to an effective registration
statement or in compliance with Rules 144 or 145 as amended; (iv) no action,
suit, or proceeding being pending or threatened before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by the Merger Agreement, (B) cause any of
the transactions contemplated by the Merger Agreement to be rescinded following
consummation, (C) affect adversely the right of AGV to own the former assets,
to operate the former businesses, and to control the former subsidiaries of
Nucleus, or (D) affect adversely the right of any of the former subsidiaries of
Nucleus to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect); (v)
Nucleus having delivered to AGV a certificate to the effect that certain
conditions to the Merger Agreement have been satisfied; (vi) the Merger
Agreement having been approved by the stockholders of AGV; and (vii) all
actions to be taken by Nucleus in connection with consummation of the
transactions contemplated by the Merger Agreement and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated thereby being reasonably satisfactory in form and substance to
AGV.
AGV may waive any condition specified in the Merger Agreement if it executes
a writing so stating at or prior to the Closing.
The obligations of Nucleus to consummate the Merger are subject to the
satisfaction of the following conditions: (i) the accuracy of the
representations and warranties of AGV contained in the Merger Agreement at
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<PAGE>
and as of the Closing Date; (ii) AGV having performed and complied with all of
its covenants contained in the Merger Agreement in all material respects on or
before the Closing Date; (iii) no action, suit, or proceeding being pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by the
Merger Agreement, (B) cause any of the transactions contemplated by the Merger
Agreement to be rescinded following consummation, (C) affect adversely the
right of AGV to own the former assets, to operate the former businesses, and
to control the former subsidiaries of Nucleus, or (D) affect adversely the
right of any of the former subsidiaries of Nucleus to own its assets and to
operate its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect); (iv) AGV having delivered to Nucleus a
certificate to the effect that certain conditions to the Merger Agreement have
been satisfied; (v) the by-laws of AGV having been amended to provide for up
to ten directors; and (vi) all actions to be taken by AGV in connection with
consummation of the transactions contemplated by the Merger Agreement and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated thereby being reasonably satisfactory in form
and substance to Nucleus.
Nucleus may waive any condition specified in the Merger Agreement if it
executes a writing so stating at or prior to the Closing.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the stockholders of AGV under
the circumstances described below.
Either AGV or Nucleus may terminate the Merger Agreement if: (i) the
Effective Time has not occurred by April 30, 1999; (ii) the consent of the
other party is given; or (iii) AGV fails to obtain stockholder approval of the
Meeting.
AGV may terminate the Merger Agreement if: (i) Nucleus has breached the
Merger Agreement so that the conditions relating to representations and
warranties or covenants have not been satisfied and this breach has not been
cured within 30 days after the notice of breach; or (ii) if the closing shall
not have occurred on or before April 30, 1999, by reason of the failure of any
condition precedent to AGV's obligations thereunder (unless the failure
results primarily from AGV breaching any representation, warranty or covenant
contained in the Merger Agreement).
Nucleus may terminate the Merger Agreement if: (i) AGV has breached the
Merger Agreement so that the conditions relating to representations and
warranties or covenants have not been satisfied and this breach has not been
cured within 30 days after notice of breach; or (ii) if the closing shall not
have occurred on or before April 30, 1999, by reason of the failure of any
condition precedent to Nucleus' obligation thereunder (unless the failure
results primarily from Nucleus breaching any representation, warranty or
covenant contained in the Merger Agreement), or (iii) in the event Nucleus'
Board of Directors conclude that termination would be in the best interest of
Nucleus and its stockholder.
Expenses
In the event of termination of the Merger Agreement, each party will bear
its own fees and expenses in connection with the Merger.
Acquisition Proposals; No Solicitation
Nucleus has agreed that it will not (and will not cause or permit any of
its subsidiaries to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person (as defined) relating to the acquisition of
all or substantially all of the capital stock or assets of any of Nucleus or
its subsidiaries (including any acquisition
30
<PAGE>
structured as a merger, consolidation, or share exchange); provided, however,
that Nucleus, its subsidiaries, and their directors and officers will remain
free to participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require. Nucleus is
required to notify AGV immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
AGV has agreed that it will not (and will not cause or permit any of its
subsidiaries to) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of AGV or its
subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that AGV, its subsidiaries, and their
directors and officers will remain free to participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by and
Person to do or seek any of the extent their fiduciary duties may require. AGV
is required to notify Nucleus immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
Conduct of Business Pending Merger
AGV and Nucleus have agreed to conduct their respective businesses in the
ordinary course pending the Merger and have agreed not to and (where
applicable) not to permit their respective subsidiaries to:
(i) authorize or effect any change in their charter or bylaws;
(ii) grant any options, warrants, or other rights to purchase or obtain
any of their capital stock or issue, sell, or otherwise dispose of any of
their capital stock (except upon the conversion or exercise of options,
warrants, and other rights currently outstanding);
(iii) declare, set aside, or pay any dividend or distribution with
respect to their capital stock (whether in cash or in kind), or redeem,
repurchase, or otherwise acquire any of their capital stock;
(iv) issue any note, bond, or other debt security or create, incur,
assume, or guarantee any indebtedness for borrowed money or capitalized
lease obligation outside the ordinary course of business;
(v) impose any Security Interest (as defined) upon any of their assets
outside the ordinary course of business;
(vi) make any capital investment in, make any loan to, or acquire the
securities or assets of any other Person (as defined) outside the ordinary
course of business;
(vii) make any change in employment terms for any of their directors,
officers, and employees outside the ordinary course of business; or
(viii) commit to any of the foregoing.
AGV and Nucleus have also agreed to give each other reasonable access to
their respective books and records. Each has agreed to give the other notice
of specified material events and prior notice of any press release or public
announcement and to consult with the other before issuing any press release or
making public announcements relating to the Merger.
Both Nucleus and AGV have agreed to use their reasonable best efforts to
satisfy or cause to be satisfied all of the conditions to the Merger and to
cause the transactions contemplated by the Merger Agreement to be consummated.
Nucleus has also agreed to use its best efforts to obtain from each
"affiliate" (as used in Rule 145 under the Securities Act) an agreement to
comply with applicable provisions of the Securities Act.
Directors' and Officers' Indemnification
The Merger Agreement provides that, after the Effective Time, AGV, as the
surviving corporation will indemnify defend and hold harmless to the full
extent a corporation is permitted under the General Corporation
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Law of the State of Nevada to indemnify its own directors, officers and
agents, each person who is now, or has been at any time prior to the date of
the Merger Agreement or who becomes prior to the Effective Time, an officer or
director of Nucleus or, for purposes of clause (ii), certain agents of
Nucleus, acting in connection with the negotiation, execution and delivery of
the Merger Agreement and the consummation of the Merger ("Indemnified
Parties"), against (i) all losses, claims, damages, costs, reasonable
expenses, liabilities or judgments or amounts ("Indemnified Liabilities") of
or in connection with any claim, action, suit proceeding or investigation
based in whole or in part on or arising in whole or in part out of the fact
that such person is or was a director or officer of Nucleus, whether
pertaining to any matter existing now or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, at, or after the
Effective Time, and (ii) all Indemnified Liabilities based in whole or in part
on, arising in whole or in part out of or pertaining to the Merger Agreement
or the Merger, including without limitation, any act or omission of the
officers and directors of Nucleus in the negotiation, execution and delivery
of the Merger Agreement and the consummation of the Merger.
Representations and Warranties
In the Merger Agreement, Nucleus and AGV have made certain representations
and warranties concerning corporate existence and power, corporate
authorization, governmental consents and approvals, non-contravention of
agreements and instruments, financial statements, absence of certain changes,
absence of undisclosed liabilities, compliance with laws, broker's fees, and
continuity of business enterprise. In addition, AGV has made certain
representations and warranties concerning filings with the Commission.
Amendments and Waivers
Any term of the Merger Agreement may be amended and the observance of any
term of the Merger Agreement may be waived, by a writing signed by both
parties, provided, however, that any amendment effected subsequent to
stockholder approval will be subject to the restrictions contained in Illinois
and Nevada Law.
Rights of Dissenting Stockholders
AGV stockholders will not have appraisal rights in connection with the
Merger.
The holder of Nucleus Common Stock had the right to dissent with respect to
the Merger, however, such holder has notified Nucleus that it has waived its
dissenter's right.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined statements of
operations of AGV gives effect to the proposed merger of AGV and Nucleus as if
such transaction occurred at the beginning of the period presented. The
unaudited pro forma condensed combined statements of operations for the years
ended December 31, 1998 and 1997, are derived from the audited statements of
operations of AGV and Nucleus.
The unaudited pro forma condensed combined balance sheet at December 31,
1998 gives effect to the proposed Merger of AGV and Nucleus as if such
transaction occurred on December 31, 1998. The unaudited pro forma condensed
combined balance sheet is derived from the audited historical balance sheet of
AGV and Nucleus as of December 31, 1998.
The unaudited pro forma condensed combined financial data do not reflect
the effects of any anticipated changes to be made by AGV in its operations
from the historical operations, are presented for informational purposes only
and should not be construed to be indicating (i) the results of operations or
the financial position of AGV that actually would have occurred had the
proposed merger been consummated as of the dates indicated or (ii) the results
of operation or the financial position of AGV in the future. The numbers
herein have been adjusted retroactively to reflect AGV's 1-for-10 reverse
stock split, which became effective on December 11, 1998.
The following pro forma condensed combined financial data and notes should
be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operation," the consolidated financial
statements and notes thereto of AGV and Nucleus and other historical
information included elsewhere in this proxy.
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<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 1998
<TABLE>
<CAPTION>
Historical
----------------------
ASSETS AGV Nucleus Pro Forma(1)
------ ----------- --------- -----------
<S> <C> <C> <C>
Current assets:
Cash.................................... $ 1,126 $ 24,091 $ 25,217
Accounts receivable..................... 10,000 161,312 171,312
Unbilled revenue........................ -- 167,977 167,977
Inventory............................... 34,690 -- 34,690
Due from shareholder.................... -- 115,383 115,383
Other current assets.................... -- 58,829 58,829
----------- --------- -----------
Total current assets.................. $ 45,816 $ 527,592 $ 573,408
----------- --------- -----------
Property, plant and equipment, net........ 21,195 46,120 67,315
----------- --------- -----------
Goodwill, net........................... 20,195 -- 20,195
----------- --------- -----------
Total assets............................ $ 87,206 $ 573,712 $ 660,918
=========== ========= ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C> <C>
Current liabilities:
Due to shareholder...................... $ 175,000 $ -- $ 175,000
Current portion of long term debt....... 3,310 -- 3,310
Accounts payable........................ 169,135 596,234 765,369
Accrued expenses........................ 19,258 303,798 323,056
----------- --------- -----------
Total current liabilities............. $ 366,703 $ 900,032 $ 1,266,735
----------- --------- -----------
Long term liabilities..................... 9,142 -- 9,142
Stockholders' deficit:
Common stock and paid in capital........ 2,780,657 3,000 2,783,657
Accumulated deficit..................... (3,069,296) (329,320) (3,398,616)
----------- --------- -----------
Total stockholders' deficit........... (288,639) (326,320) (614,959)
----------- --------- -----------
Total liabilities and stockholders'
deficit.............................. $ 87,206 $ 573,712 $ 660,918
=========== ========= ===========
</TABLE>
34
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical
--------------------- Pro
AGV Nucleus Forma(2)
--------- ---------- ----------
<S> <C> <C> <C>
Sales....................................... $ 747,144 $2,827,428 $3,574,572
--------- ---------- ----------
Cost of sales............................... 769,754 1,747,403 2,517,157
Selling and marketing expenses.............. 14,789 367,579 382,368
Research and development expenses........... -- 40,883 40,883
General and administrative expenses......... 441,068 738,673 1,179,741
--------- ---------- ----------
Loss from operations........................ (478,467) (67,110) (545,577)
Other income (expense)...................... (13,902) 35,008 21,106
--------- ---------- ----------
Loss before tax benefit and extraordinary
item....................................... (492,369) (32,102) (524,471)
Tax benefit................................. 25,820 -- 25,820
--------- ---------- ----------
Loss before extraordinary item(4)........... $(466,549) $ (32,102) $ (498,651)
Extraordinary item (net of tax benefit of
$25,820)(4)................................ 50,125 -- 50,125
--------- ---------- ----------
Net loss(4)................................. $(416,424) $ (32,102) $ (448,526)
========= ========== ==========
Diluted loss per share before extraordinary
item(3)................................... $ (0.43) $ (32.10) $ (0.08)
Diluted loss per share(3).................. $ (0.38) $ (32.10) $ (0.07)
========= ========== ==========
Diluted weighted average shares
outstanding(3)............................ 1,106,056 1,000 6,413,165
========= ========== ==========
</TABLE>
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical
--------------------- Pro
AGV Nucleus(5) Forma(2)
--------- ---------- ----------
<S> <C> <C> <C>
Sales........................................ $ 721,745 $ 956,810 $1,678,555
--------- --------- ----------
Cost of sales................................ 690,064 615,229 1,305,293
Selling and marketing expenses............... 15,948 86,000 101,948
Research and development expenses............ -- 248,690 248,690
General and administration expenses.......... 413,264 304,109 717,373
--------- --------- ----------
Loss from operations......................... (397,531) (297,218) (694,749)
Other expense................................ (33,390) -- (33,390)
--------- --------- ----------
Net loss..................................... $(430,921) $(297,218) $ (728,139)
========= ========= ==========
Diluted loss per share (3)................. $ (0.45) $ (297.22) $ (0.16)
========= ========= ==========
Diluted weighted average shares outstanding
(3)....................................... 950,622 1,000 4,488,695
========= ========= ==========
</TABLE>
35
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
Notes to Unaudited Pro Forma Condensed Combined Financial Data
- --------
(1) On October 30, 1998, AGV and Nucleus entered into a definitive agreement
and plan of merger (the "Agreement") providing for the merger of Nucleus
with and into AGV. Under the terms of the Agreement, which was approved by
the Board of Directors of both AGV and Nucleus, the holder of Nucleus
Common Stock will receive 5,307.109 shares of AGV Common Stock for each of
its 1,000 outstanding shares. Accordingly, the pro forma condensed
combined balance sheet as of December 31, 1998, gives effect to the
issuance of 5,307,109 AGV common shares and assumes the Merger with
Nucleus will be accounted for as a pooling of interests.
(2) The pro forma condensed combined statements of operations gives effect to
the Merger of AGV with Nucleus as if the merger occurred on January 1 of
the period indicated and is accounted for as a pooling of interests and,
accordingly, the historical results of operations are combined together.
(3) The pro forma weighted average shares outstanding for basic and diluted
earnings (loss) per share gives effect to the issuance of 5,307.109 shares
of AGV stock in exchange for each of the 1,000 shares of Nucleus stock
outstanding for all periods presented, weighted for the period such shares
were actually outstanding.
(4) During 1997, AGV was involved in claims concerning disputed payable
balances totaling $129,945 with two suppliers. In 1998, the claims were
settled for $54,000, resulting in an extraordinary gain of $75,945
($50,125 net of tax).
(5) The historical results of operations of Nucleus for the year ended
December 31, 1997, reflect the operations of Nucleus since April 30, 1997
(its inception).
ELECTION OF DIRECTORS
Five directors (constituting, along with Steven H. Walker and Adriann
Belinne, the entire AGV Board) are to be elected at the Meeting. Unless
otherwise specified, the enclosed proxy will be voted in favor of the persons
named below, to serve until the next Annual Meeting of Stockholders of AGV and
until their successors shall have been duly elected and shall qualify. In the
event any of these nominees shall be unable to serve as a director, the shares
represented by the proxy will be voted for the person, if any, who is
designated by the AGV Board of Directors to replace the nominee. All nominees
have consented to be named and have indicated their intent to serve if
elected. The AGV Board has no reason to believe that any of the nominees will
be unable to serve or that any vacancy on the AGV Board will occur.
The nominees are as follows:
<TABLE>
<CAPTION>
Nominee Age
------- ---
<S> <C>
John C. Paulsen (1)................................................... 36
Stephen Calk (1)...................................................... 34
Mark Fera (1)......................................................... 32
J. Theodore Hartley (1)............................................... 31
Jeffrey R. Wescott (1)................................................ 41
</TABLE>
John C. Paulsen will, if elected director, serve as Chairman of the Board
of Directors, Chief Executive Officer, and President of AGV. Mr. Paulsen is
currently Chairman of the Board of Directors and Chief Executive Officer of
Nucleus. From 1990 to 1995, Mr. Paulsen served as President and Chairman of
the Board of Directors of American Teletronics Long Distance, Inc., a reseller
of long distance telecommunications services. From 1995 to 1997, Mr. Paulsen
served as President and Chairman of the Board of Directors of MetroLink
Communications, Inc., a long-distance carrier. See "Nucleus--Business."
Stephen Calk has, since October 1995, been the president of Chicago
Bancorp, Chicago's second largest private mortgage bank. Mr. Calk received a
B.A. from the University of Illinois in 1988, and received a Master's Degree
from the J.L. Kellogg Graduate School of Management at Northwestern University
in 1998.
36
<PAGE>
Mark Fera currently serves as Executive Vice President and Chief Operating
Officer. From 1997 to 1998, Mr. Fera was Manager of Strategic Accounts of I2
Technologies, a software company. From 1993 to 1997, Mr. Fera was affiliated
with Systems Software Associates, a software solutions company. Mr. Fera
received a bachelor's degree from the University of Illinois in 1988.
J. Theodore Hartley currently serves as Executive Vice President and Chief
Financial Officer. From 1997 to 1998, Mr. Hartley was an investment banker
with Exvere Investment Banking, a merger and acquisition firm headquartered in
Seattle, WA. From 1990 to 1997, Mr. Hartley held a variety of positions with
Deloitte & Touche LLP (D&T), an international accounting and consulting firm.
Most recently, he served in D&T's New York National Office providing merger
and acquisition consulting services to Kohlberg, Kravis, Roberts and HFS
Incorporated. Mr. Hartley is a certified public accountant and a graduate of
Indiana University's Kelley School of Business.
Jeffrey R. Wescott is marketing executive with 18 years of active
involvement in the financial services industry. Mr. Wescott is experienced in
developing, consulting and supporting client relationships for a range of
activities including acquisitions/divestitures, credit/capitalization,
debt/equity placements, strategic planning and workouts. Mr. Wescott has
worked for a number of financial institutions including Continental Illinois
National Bank, Citicorp North America and Bank of America. Mr. Wescott
received a BA from Boston College and MBA from American Graduate School of
International Management.
- --------
(1) Pursuant to the Merger Agreement, Mr. Paulsen and the four persons
designated by Mr. Paulsen--Mr. Calk, Mr. Fera, Mr. Hartley and Mr.
Wescott--have been nominated as directors of AGV.
NUCLEUS INC.
(formerly known as American General Ventures, Inc.)
BUSINESS
ITEM 1 DESCRIPTION OF BUSINESS
(a) General Development of Business
(a) (1) The original purpose of American General Ventures, Inc. (AGV) was
to seek potential business ventures, which in the opinion of the management of
AGV would provide a profit for AGV. Such involvement would be either as the
acquisition of existing businesses or the acquisition of assets to establish a
subsidiary business for AGV. AGV changed its name to Nucleus, Inc. on December
8, 1998. The name AGV will be used for simplicity purposes and ease of
reference throughout the remainder of this document.
On January 22, l986, AGV signed a letter of intent with Aspen Medical
Diagnostics, Inc. and Neuro-Medical, Inc., both Utah Corporations, to acquire
all of the stock of both of those companies in exchange for 1,000,000 shares
of the common stock of AGV to the shareholders of each of the acquired
companies or a total of 2,000,000 shares. Both acquired companies were in the
business of establishing medical diagnostic facilities.
On September 11, 1987, AGV acquired all of the stock of ACI Micro Systems,
Inc. (ACI), a Colorado Corporation. ACI was in the business of selling
computer and computer accessories manufactured by third parties.
In January 1991, AGV incorporated Your ATTACHE, a wholly owned subsidiary.
Your ATTACHE develops and sells licenses of powerful high speed computer
systems that provides a mutually beneficial communication and interaction
medium between suppliers and consumers. Your ATTACHE is not active and had no
revenues in 1998.
The Company has not been involved, during the year ended December 31, l998,
in any bankruptcy, receivership or similar proceedings.
37
<PAGE>
(2) Not applicable.
(b) Financial Information About Industry Segments
AGV has engaged in a single line of business since September 11, 1987, when
the Company acquired ACI. The Company engages in the business of selling
computers and computer accessories manufactured by third parties.
(c) Narrative Description of Business
(c)(1)(i) AGV on January 29, 1986, acquired 100 percent of the outstanding
stock of Neuro-Medical, Inc. (Neuro) and Aspen Medical Diagnostics, Inc.
(Aspen), both Utah corporations. The letter of intent for said purchase was
executed on the 22nd day of January, 1986. In exchange, AGV issued 1,000,000
of its restricted shares to the stockholders of Aspen and 1,000,000 of its
restricted shares to the stockholders of Neuro.
The business of Neuro and Aspen was to establish and operate neurological
diagnostic centers that provide diagnostic testing for physicians and others
in the medical community. The Company made available to the medical community
the latest neurological testing and assessment equipment. The officers of AGV
for eight years used the Brain Electrical Activity Mapping System (BEAM) which
was developed at Harvard University Medical School. The officers of AGV
selected the BEAM system because they believed that the system represented a
significant advancement over alternative equipment being used for neurological
testing in the overall treatment of patients. However, the technology faced
resistance from the medical community which created a negative impact upon the
growth of AGV. AGV ceased to operate its BEAM centers in 1993.
Current Operations
AGV continues to operate ACI, which sells computers and accessories which
are manufactured by third parties.
Wal-Mart
AGV has had two vendor agreements with Wal-Mart. The first agreement,
entered into during August, 1995, was a resale agreement for Wal-Mart to sell
AGV computers in their retail stores. The agreement contained provisions which
eventually proved disadvantageous to AGV.
This initial agreement with Wal-Mart incorporated a "sale guarantee" from
AGV to Wal-Mart which gave Wal-Mart customers 15 days to return a computer,
for any reason. Wal-Mart, at its discretion, could either sell the computer
again, or return it to AGV for a full refund, which was effected as a debit
entry on amounts due AGV from Wal-Mart. The second component of the guarantee
allowed Wal-Mart to return unsold computers to AGV for a full refund.
AGV management and Wal-Mart's corporate buyer of computer products agreed
that certain Wal-Mart stores were abusing the guarantee provisions. Individual
Wal-Mart stores were directed by corporate staff to discontinue returning
unsold computers to AGV for credit. This agreement was terminated by mutual
agreement in April, 1997.
A subsequent agreement between the companies was signed in June, 1997. This
agreement permitted AGV to sell its computers from Wal-Mart's web site, Wal-
Mart Online. There was no sale guarantee provision in the agreement, however
the customer received the right to return the equipment within fifteen (15)
days of purchase for a full refund. Customers experiencing problems after
expiration of the 15 day period were directed to call AGV technical support.
In instances where technical problems could not be corrected on a telephone
call, the computer would be shipped to AGV for repair.
38
<PAGE>
Concerns were expressed by Wal-Mart regarding the quality of AGV's products
and technical support, and by AGV regarding Wal-Mart's adherence to
exclusivity provisions in the vendor agreement. AGV was also concerned with
suspected violations by Wal-Mart of the fifteen (15) day return deadline
policy. Due to these and
other operational problems under the agreement, on October 30, 1998, both
parties agreed to suspend sales until their problems could by resolved. As of
this date a new agreement has not been consummated.
Proposed Operations
Subsequent to the termination of the Wal-Mart agreement, AGV has been
refocusing its efforts to generate sales from its own website and store--a
strategy which management believes will offset a portion of the revenue lost
from the termination of the Wal-Mart agreement. ACI has developed its own
website (www.availpc.com). ACI pays a fee to Hotmail, a free internet email
service wholly-owned by Microsoft, to promote its computer systems. These
banner ads enable Hotmail customers to link to AGV's website to purchase
computer systems.
AGV does not expect the revenue generated from its website sales to fully
replace the revenue lost from the Wal-Mart agreement.
ACI Micro Systems, Inc.
ACI Micro Systems, Inc., manufactures, through outsourcing, non-integrated
circuitry computer systems that allow true upgradability. ACI presently has a
capacity of assembling 15,000 computers per month.
Seasonality
AGV's business is not considered seasonal.
Backlog
As of December 31, 1998, AGV was able to fill all orders and did not have
any backlog orders.
Competition
AGV's sales operations face stiff competition from existing manufacturers
and sellers of computers. AGV competes by selling computers with non-
integrated circuitry that allows true upgradability at a lower cost.
ACI's Build-To-Order (BTO) program has an advantage over the larger
computer manufacturers because it gives the consumer more choices and lower
prices. The customer is able to build a computer system for less than $1,000.
This is not possible with some of the larger firms because their standard
systems contain components that the consumer may not want. Limited choices
result in higher prices for computer systems.
AGV does not have an established customer service program as compared to
its competitors--some of which have 24 hour, 7 day service and substantially
more capital resources than does AGV. AGV's customer service can best be
described as limited as AGV does not have the systems, personnel, or capital
to establish a high end customer service operation. The inability to provide
comprehensive customer service may have a negative impact on AGV's ability to
compete in its industry and may also have an adverse effect on AGV's operating
results.
Research and Development
Since its inception, AGV has spent $193,370 for company sponsored research
and development of the Your ATTACHE concept. No money was spent in 1998.
39
<PAGE>
Compliance with Environmental Regulations
Management of AGV believes that compliance with federal, state, and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment will have no material
effect on the capital expenditures, earnings and competitive position of AGV.
Employees
AGV employs a total of five persons: a chief executive officer, a chief
operating officer, and two full-time and one part-time technicians and/or
assemblers.
Foreign Operations
AGV had no foreign operations or export sales during fiscal year 1998.
Properties
AGV currently occupies approximately 2,000 square feet at 3650 Austin
Bluffs Parkway, Suite 138, Colorado Springs, Colorado. AGV pays $2,110 plus
utilities for rent for the Austin Bluffs facility. The lease for the Austin
Bluffs space will continue until May 1, 1999. AGV has two five-year options on
the Austin Bluffs space.
Legal Proceedings in 1998
The Company has disputes in the normal course of operations with a number
of its suppliers. Such matters typically relate to vendors requesting payment
on product delivered to the Company, which the Company believes is either
defective or product which had not been ordered from such vendor.
The Company was notified on December 31, 1998 of a collection action filed
against it by Pony Computer, Inc. in the amount of $117,000 for payment on
certain products shipped to ACI by Pony. Management believes that the case was
filed in the wrong jurisdiction and has filed a motion to dismiss. No ruling
on this motion is expected prior to May 1, 1999. Management believes the case
is without merit and expects to aggressively defend the action if its motion
for dismissal is denied.
During 1997, the Company's subsidiary, ACI, was sued by a supplier, Cal IC,
for $27,500, plus attorneys' fees and costs for payment on certain products
shipped to ACI by Cal IC. The Company's management believed that much of the
product received from Cal IC was either defective or the wrong products were
shipped. Cal IC refused to credit the Company's account or accept the return
of product for a credit. This matter was settled in 1998 at a mediation
session for $22,000, $12,000 payable in cash, with the balance due in equal
monthly installments over ten months. The Company has an account payable for
the outstanding portion of the payments due in the amount of $6,000 and has
recorded an extraordinary gain on the settlement in the amount of $5,500
($3,630 net of tax).
During 1997, the Company had a disputed payable balance with one of its
suppliers, Worldnet. Worldnet alleged that the Company owed them $102,445 for
payment on certain products shipped to the Company by Worldnet. The Company's
management believed that much of the product received from Worldnet was either
defective or the wrong products were shipped. Worldnet refused to credit the
Company's account or accept the return of product for a credit. This matter
was settled in 1998 from negotiation between the two parties for $32,000. the
Company has recorded an extraordinary gain related to the settlement of the
disputed payable in the amount of $70,445 ($46,495 net of tax).
During 1997, the Company had disputed payable balances with two additional
suppliers aggregating a total of $51,000. Management believes that such claims
will be successfully negotiated and will likely result in settlement at
reduced amounts.
40
<PAGE>
AGV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
AGV's primary business and source of revenue is derived from the resale of
computer systems and related products which are manufactured and/or assembled
by third parties. Revenues for the year ended December 31, 1998 increased 4
percent to $747,144 compared to $721,745 in 1997. The increase in revenue was
primarily related to AGV experiencing steady sales volume through Wal-Mart
Online (up until the termination of the agreement) and the Company's ability
to generate orders through its own website (www.availpc.com). AGV's sales
derived from Wal-Mart approximated 41 percent and 50 percent for 1998 and
1997, respectively.
AGV has had two vendor agreements with Wal-Mart. The first agreement
(entered into in August, 1995) was a resale agreement for Wal-Mart to sell AGV
computers in their retail stores. The first agreement was terminated by mutual
consent in April, 1997. The second agreement (entered into in June, 1997)
permitted AGV to sell its computers from Wal-Mart's website, Wal-Mart Online.
The second agreement was terminated on October 30, 1998 by mutual consent of
both parties as Wal-Mart was concerned over the quality of AGV's products and
its customer service and AGV suspected violations of customer return policies.
As of this date a new agreement has not been consummated.
The satisfaction of AGV's customers is dependent on the customer receiving
a quality product meeting their specifications. AGV's two primary system
providers for the Wal-Mart agreement employed different product delivery
techniques. The Company believes its relationship with Pony Computers and the
delivery format used by Pony resulted in poor customer satisfaction.
Pony Computers fulfilled a majority of AGV's orders related to Wal-Mart
Online and orders made through Wal-Mart's web site. Pony delivered these
systems to customers using a drop shipment technique. Although AGV monitored
the administrative matters involved in the shipment (e.g., correct shipping
address), and handled post delivery service, AGV was unable to examine the
systems for proper componentry or test and inspect the systems to ensure
functionality prior to a customer delivery. AGV, and its customers, often
experienced significant quality problems (e.g., systems not operating
properly, incorrect components, etc.) with Pony's systems. AGV's management
believed that the poor quality of systems shipped by Pony caused the
termination of the second Wal-Mart agreement referred to above. As a result,
AGV discontinued its use of Pony to fulfill its system requirements in
November, 1998. AGV continues to purchase systems from Aberdeen Trading as
well as other system providers.
The discontinuance of the Wal-Mart agreement, and loss of the associated
revenue, has and will continue to have a severe adverse effect on AGV's
results of operation, liquidity and capital resources. Consequently, results
of operations for any previous period should not be relied upon as indicative
of expected operating performance for any future period.
The primary cost component of revenue is the cost AGV incurs by purchasing
these computer systems and products from third parties. AGV does not currently
maintain a contractual relationship with any system provider, electing to
submit individual purchase orders to such system providers for price quotes
upon receipt of a customer order. Prices are generally established by a system
provider from a price list dependent upon the components and/or systems
requested by a customer. Although no contractual relationships exist, AGV has
historically used Pony Computer and Aberdeen Trading to fulfill its internet
generated orders.
41
<PAGE>
Cost of sales for the year ended December 31, 1998 increased 12 percent to
$769,754 compared to $690,064 in 1997. Cost of sales as a percentage of
revenue was 103 percent during 1998 compared to 96 percent during 1997. The
increase in cost of sales was primarily a result of a write-down of inventory
totaling $109,855 to record AGV's inventory at net realizable value.
Selling, general, and administrative expense (S,G,&A) for the year ended
December 31, 1998 increased 6 percent to $455,857 compared to $429,212 in
1997. S,G,&A as a percentage of revenue was 61 percent during 1998 compared to
59 percent during 1997. The increase in S,G,&A was primarily related to AGV
issuing equity instruments for services rendered at values less than the fair
value of such equity instruments.
During 1997, AGV was involved in claims concerning disputed payable
balances totaling $129,945 with two suppliers. In 1998, the claims were
settled for $54,000, resulting in an extraordinary after tax gain of $50,125.
AGV's net loss decreased 3 percent to $416,424 for the year ended December
31, 1998, compared to $430,921 in 1997. The loss per share was $0.38 for 1998
compared to $0.45 for 1997. The loss in 1998 was primarily due to the
inventory writedown and the issuance of equity instruments as discussed above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues for the year ended December 31, 1997 decreased 48 percent to
$721,745 compared to $1,397,850 in 1996. The decrease in revenue was primarily
related to AGV altering its selling format with Wal-Mart from a retail store
format to an Online storefront format through Wal-Mart Online. Wal-Mart Online
was in the development stages during 1997 and AGV did not experience sales
through this format for almost two months during 1997.
Cost of sales for the year ended December 31, 1997 decreased 49 percent to
$690,064 compared to $1,365,308 in 1996. Cost of sales as a percentage of
revenue was 96 percent during 1997 compared to 98 percent during 1996. The
decrease in cost of sales was primarily related to Wal-Mart returning fewer
computers during 1997 than during 1996 and AGV's decision to focus its selling
efforts through Wal-Mart Online rather than through the retail store format.
Selling, general, and administrative expense (S,G,&A) for the year ended
December 31, 1997 decreased 39 percent to $429,212 compared to $701,032 in
1996. S,G,&A as a percentage of revenue was 60 percent during 1997 compared to
50 percent during 1996. AGV was able to decrease the amount of S,G,&A expense
in 1998 by focusing on Internet related sales as opposed to sales through
retail stores.
AGV's net loss decreased 40 percent to $430,921 for the year ended December
31, 1997, compared to $723,911 in 1996. The loss per share was $0.45 for 1997
compared to $0.79 for 1996. The decrease in loss was primarily due to AGV's
ability to partially increase margins from focusing sales efforts on its
Internet format and reducing S,G,&A costs as discussed above.
Liquidity and Capital Resources
December 31, 1998
Working capital (current assets less current liabilities) at December 31,
1998 totaled ($320,887) compared to ($142,243) at December 31, 1997. The
decrease in working capital was primarily related to a writedown of $109,855
to record inventory at its net realizable value and the net loss incurred by
AGV for the year ended December 31, 1998.
AGV has not derived any revenue from Wal-Mart subsequent to the termination
of their agreement on October 30, 1998. AGV believes that the loss of the Wal-
Mart agreement, and the associated revenues, will have a severe adverse effect
on the Company's future liquidity. The Company is refocusing its efforts to
generate
42
<PAGE>
sales from its own website and store--a strategy which management believes
will generate cash flow from operations and enable the Company to offset a
portion of the revenue lost from the termination of the Wal-Mart agreement.
AGV does not expect the revenue generated from its website sales to fully
replace the revenue lost from the Wal-Mart agreement.
AGV also expects to seek additional sources of capital to continue to fund
operations while management refocuses its efforts away from its "Wal-Mart
Strategy" and concentrate on promoting sales on its own website. AGV believes
that by re-focusing its efforts toward generating sales from its own website
and by aligning itself with quality system providers will enable AGV to offset
a portion of the revenue lost from the Wal-Mart business.
The satisfaction of AGV's cash requirements during 1999 and thereafter will
depend in large part on AGV's ability to successfully generate sales on its
own website and raise capital to fund operations. There can, however, be no
assurance that sufficient cash will be generated from operations or that
unanticipated events requiring the expenditure of funds will not occur.
As a result, AGV expects to aggressively seek additional sources of funds,
the form of which will vary depending upon prevailing market and other
conditions and may include short or long-term borrowing or the issuance of
debt or equity securities. Additionally, the Company's President has
historically provided working capital advances to the Company. There can be no
assurance that AGV will be able to obtain such funding, or if such funding is
available, that it will be on favorable terms.
On October 30, 1998 the Company entered into a merger agreement with
Nucleus Holdings, Inc. (Holdings) whereby all of the outstanding shares of
Holdings would be exchanged for 5,307,109 newly issued Company shares. The
merger is intended to qualify as a tax-free reorganization, as permitted by
the Code and pooling-of-interests for accounting and financial reporting
purposes. Completion of the transaction is subject to, among other things, the
approval of AGV's stockholders.
December 31, 1997
Working capital (current assets less current liabilities) at December 31,
1997 totaled ($142,243), compared to ($149,544) at December 31, 1996. The
change in working capital was primarily related to the Company's Chairman
converting $500,000 in debt owed to him by the Company to equity through the
issuance of 50,000 shares at $10.00 per share, which was offset by the net
loss incurred by AGV for the year ended December 31, 1997.
AGV currently has no commitments for capital expenditures.
Year 2000 Compliance
For a discussion of Year 2000 compliance and related issues subsequent to
the Merger, reference is made to "Nucleus Management's Discussion and Analysis
of Financial Condition--Year 2000 Compliance."
EXECUTIVE OFFICERS AND DIRECTORS
The executive and directors officers of AGV are currently as follows:
<TABLE>
<CAPTION>
Dates of
Name Position held with AGV Age Service
---- ---------------------- --- ---------
<C> <S> <C> <C>
Steven H. Walker............ President, Chairman of the Board 59 1985-1998
of Directors, and Chief
Executive Officer and Director
Christopher S. Walker....... Secretary, Treasurer, Chief 28 1996-1998
Operating Officer and Director
Adriann Belinne............. Director 34 1998
</TABLE>
43
<PAGE>
If the Merger is approved by the stockholders, and the five directors named
previously are elected, the executive officers and other key personnel of AGV
will be as follows:
<TABLE>
<CAPTION>
Name Position held with AGV
- ---- ----------------------
<S> <C>
John C. Paulsen............ Chief Executive Officer
Mark Fera.................. Executive Vice President and Chief Operating Officer
J. Theodore Hartley........ Executive Vice President and Chief Financial Officer
Steven H. Walker........... Vice President of Strategic Alliances
</TABLE>
Steven H. Walker, has been President, Chairman of the Board of Directors
and Chief Executive Officer of AGV since January 1986 and has been Vice
President and Chairman of the Board of Neuro-Medical, Inc. and President and
Chairman of the Board of Aspen Medical Diagnostics, Inc. since 1983, and 1984,
respectively. Mr. Walker is also a licensed psychologist who was in private
practice for 15 years. Mr. Walker is a past president of the El Paso County
Psychological Society. Mr. Walker received a Ph.D. from the University of
Wyoming in 1972.
Christopher S. Walker, has been Secretary, Treasurer, Director, and Chief
Operating Officer since August, 1996. He has been an employee of the Company
since 1988 and has held positions of Transfer Agent and Marketing Director.
Mr. Walker received a Bachelor of Science degree in Business Administration
from the University of Northern Colorado in 1990.
Adriann Belinne has been a director of AGV since October, 1998. Since
January, 1998, Mr. Belinne has been serving as Senior Manager of International
and Business Development (Hotmail) at Microsoft, Inc. From June, 1995, to
September, 1995 and from May, 1996 to September, 1997, Mr. Belinne served as
an associate of management consulting at McKinsey & Co., Inc. From September,
1997, to January 1998, Mr. Belinne was a Senior Manager of Business
Development at Hotmail Corp. In 1991, Mr. Belinne founded and until 1994,
served as President of Christmas Concepts, a start-up service company in
Oklahoma City, Oklahoma. Mr. Belinne received a B.S. from the United States
Air Force Academy in 1986, and an M.B.A. from the Wharton School in 1996.
For the background of John C. Paulsen, Mark Fera and J. Theodore Hartley,
see "Election of AGV Directors."
44
<PAGE>
EXECUTIVE COMPENSATION
The following table discloses compensation received for the three fiscal
years ended December 31, 1998 by the Company's Chief Executive Officer. The
Company's other executive officer did not receive compensation (combined
salary and bonus) in excess of $100,000 for 1998.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
----------------
Securities
Fiscal Annual Underlying
Name Position Held Year Salary Bonus(1) Warrants (#) (2)
- ---- ---------------------------- ------ ------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Steven H. Walker........ President, CEO, and Chairman 1998 $63,000 $-- 11,900
1997 63,000 -- --
1996 63,000 -- --
</TABLE>
- --------
(1) Steven Walker was entitled to a bonus in the amount of 10% of any net
profits of the Company. No bonuses were paid for the years presented. As
of October 30, 1998, the contingent bonus arrangement had been
discontinued.
(2) The amounts disclosed in this column include warrants issued to the Chief
Executive Officer for the periods indicated.
COMPENSATION PURSUANT TO STOCK OPTIONS/WARRANTS
No stock options were granted to the Company's Chief Executive Officer
during fiscal 1998 (or any prior fiscal year), however the Company granted an
aggregate of 11,900 warrants to purchase 11,900 shares of the Company's common
stock to the Company's Chief Executive Officer during fiscal 1998.
<TABLE>
<CAPTION>
Number of Securities Percent of Total
Underlying Warrants Warrants Granted
at Fiscal Year End to Employees in Exercise Expiration
Name Position Held (#) Fiscal Year Price ($/share) Date
- ---- ---------------------------- -------------------- ---------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Steven H. Walker........ President, CEO, and Chairman 11,900 12.95% $5.00 5/15/03
</TABLE>
AGGREGATE OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUES
The following table provides information on warrants held by the Company's
Chief Executive Officer at December 31, 1998. The Chief Executive Officer did
not exercise any warrants in 1998 and none of his warrants were in-the-money
at December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Warrants at Fiscal
Year End (#)
Warrants -------------------------
Name Position Held Issued (#) Exercisable Unexercisable
- ----- ---------------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Steven H. Walker........ President, CEO, and Chairman 11,900 11,900 --
</TABLE>
Outside directors of AGV do not receive any cash compensation for their
services as directors.
45
<PAGE>
MARKET PRICES OF AGV COMMON STOCK; DIVIDENDS
AGV Common Stock is reported by NASD on the Over-the-Counter Electronic
Bulletin Board (OTC-BB) market under the symbol NCLS. The following table sets
forth for the periods indicated the high and low bid quotations per share of
AGV Common Stock from January 1, 1997, through March 8, 1999, as reported by
NASDAQ. The quotations, which reflect prices among dealers, do not reflect
retail markups, markdowns, or other fees or commissions, and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
1997
First Quarter.......................................... $4.60 $1.50
Second Quarter......................................... $5.60 $1.50
Third Quarter.......................................... $4.30 $2.10
Fourth Quarter......................................... $2.80 $2.50
1998
First Quarter.......................................... $2.90 $2.20
Second Quarter......................................... $3.20 $2.60
Third Quarter.......................................... $3.30 $3.10
Fourth Quarter......................................... $2.50 $2.10
1999
* 1st Quarter (through March 8, 1999).................. $2.00 $0.62
</TABLE>
The number of stockholders of record of AGV Common Stock on March 8, 1999,
was approximately 1,200.
AGV has never declared or paid a cash dividend on its AGV Common Stock and
it is not expected that cash dividends will be paid to the holders of AGV
Common Stock in the foreseeable future.
46
<PAGE>
BENEFICIAL OWNERSHIP OF AGV COMMON STOCK
The following table sets forth information, as of March 8, 1999, regarding
the beneficial ownership (as defined by the Commission) of AGV Common Stock of
(i) each person known by AGV to own beneficially more than five percent of
outstanding AGV Common Stock; (ii) each director and nominee for director of
AGV; (iii) each executive officer named in the Summary Compensation Table; and
(iv) all directors and executive officers of AGV as a group. Except as
otherwise specified, the named beneficial owner has sole voting and investment
power over the shares listed.
<TABLE>
<CAPTION>
Amount and
Nature of Amount of
Beneficial Percentage of Beneficial Percentage of
Ownership Common Stock Ownership Common Stock
Name of Beneficial Owner Before Merger Before Merger After Merger After Merger (1)
- ------------------------ ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Steven H. Walker 497,540(2) 44.0% 497,540(2) 7.7%
3650 Austin Bluffs Parkway
Colorado Springs, CO 80918
Christopher S. Walker 196,880(3) 17.4% 196,880(3) 3.1%
3650 Austin Bluffs Parkway
Colorado Springs, CO 80918
Adriann Belinne 100,000(4) 8.1% 100,000(4) 1.6%
11 Stowe Lane
Menlo Park, California 94025
Jeffrey Frient 100,000(4) 8.1% 100,000(4) 1.6%
828 Foxdale Avenue
Winnetka, Illinois 60093
M.H. Meyerson & Company, 90,301 7.5% 90,301 1.4%
Inc.
525 Washington Boulevard
Jersey City, New Jersey
07310
CapitalOne, Holdings, Inc. 0 0% 5,307,109 82.5%
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60601
John C. Paulsen 0 0% 5,307,109(5) 82.5%
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60601
Stephen Calk 0 0% 0 0%
Chicago Bancorp
1640 North Wells
Chicago, Illinois 60614
Mark Fera 0 0% 0 0%
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60610
J. Theodore Hartley 0 0% 0 0%
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60610
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of Amount of
Beneficial Percentage of Beneficial Percentage of
Name of Beneficial Ownership Common Stock Ownership Common Stock
Owner Before Merger Before Merger After Merger After Merger (1)
- ------------------ ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
All directors and 794,420 64.6% 6,101,529(6) 89.7%
executive officers
as a group
(4 persons before
Merger,
6 persons after
the Merger)
</TABLE>
- --------
(1) Based on 6,436,986 Shares of AGV Common Stock outstanding after the
Merger.
(2) Includes 11,900 Shares that may be purchased upon exercise of a warrant.
(3) Includes 80,000 Shares that may be purchased upon exercise of warrants.
(4) Consists of 100,000 shares that may be purchased upon exercise of
warrants.
(5) Beneficially owned by Mr. Paulsen as sole stockholder of CapitalOne
Holdings, Inc.
(6) Includes 291,900 Shares that may be purchased upon exercise of warrants.
DESCRIPTION OF AGV CAPITAL STOCK
AGV is authorized to issue 900,000,000 Shares of AGV Common Stock, par
value $.001 and 8,000,000 Shares of AGV Preferred Stock no stated value. As of
March 8, 1999, there were 1,129,827 Shares of AGV Common Stock outstanding.
The following brief description of the capital stock of AGV is qualified in
its entirety by reference to AGV's Articles of Incorporation as amended copies
of which are on file with the Commission.
Common Stock
Holders of AGV Common Stock are entitled to one vote per Share on all
matters to be voted upon by the stockholders generally, except that with
respect to the election of directors, stockholders are entitled to cumulate
their vote for one or more directors, including the election of directors.
Subject to the rights of holders of Preferred Stock, the holders of AGV Common
Stock are entitled to receive such dividends, as may be declared from time to
time by the AGV Board out of funds legally available therefore, and in the
event of liquidation, dissolution or winding up of AGV to Share ratably in all
assets remaining after payment of liabilities. The holders of AGV Common Stock
have no preemptive or conversion rights and are not subject to further calls
or assessments by AGV.
Following the Merger, the Transfer Agent and Registrar for the AGV Common
Stock will be Illinois Stock Transfer Company of Chicago, Illinois.
Preferred Stock
The AGV Board has authority to issue Preferred Stock from time to time
without stockholder approval in one or more series. The AGV Board is
authorized with respect to any series of Preferred Stock to fix the
designation, the number of Shares, the voting powers, the conditions of the
conversion privilege, if any, the terms and conditions of the redemption
rights; if any, the rights upon liquidation, merger, consolidation,
distribution or sale of assets and dissolution or winding-up, the dividend
rate and whether dividends shall be cumulative, and any other powers,
preferences and relative, participating, optional and other rights and the
qualifications, limitations and restrictions of such series. No shares of
Preferred Stock are currently outstanding.
NUCLEUS HOLDING CORPORATION
BUSINESS
Nucleus was incorporated in December of 1997, under the laws of the State
of Illinois to act as a holding company for its companies, Alliance Net, Inc.
d/b/a TelOne and Nucleus Data Source, Inc. ("NDSI").
48
<PAGE>
Nucleus' current product offerings consist of "PC Express," a computer
repair and upgrade business, "PC OnLine," a computer help desk, and "TelOne,"
a long distance reseller and acquirer of telecom assets. Nucleus also plans to
continue developing "CheckBook," a web site that intends to store, track, and
present billing information over the Internet. However, "CheckBook" has not
yet been fully developed into a technologically feasible product. See "Risk
Factors--CheckBook and Business Browser are Unproven Technologies."
Nucleus Product Line
"PC Express" and "PC OnLine." The proliferation of computers has created a
multitude of new business opportunities. The increase in the number of
businesses and individuals using software, hardware, and the Internet on a
daily basis has created demand for goods and services related to this usage.
Nucleus is in the process of developing products and services to address this
demand.
"PC Express" provides a service in great demand. PC Express is sensitive to
the need for quick, reliable, and cost-effective repair, maintenance, and
upgrade services. The approach of PC Express is to establish long-term
relationships with customers and encourage them to take advantage of
decreasing processor and memory costs by upgrading existing computers. Nucleus
believes that as the sophistication level of users increases, upgrade services
will be in greater demand. By offering clients the choice of on-site repair or
pick-up and delivery service, PC Express strives to ensure minimal disruption
of the customer's activities.
"PC OnLine" is a service designed to minimize the computer user's downtime.
By providing reasonably priced help desk functionality, PC OnLine gives the
user access to skilled technicians capable of solving many hardware, software,
and configuration problems during a telephone session. This service also
provides the technician with remote access to the user's computer. Diagnosis,
program mending, software installation, and data recovery can all be performed
as if the technician was at the user's site.
"CheckBook." Management believes that its "CheckBook" system, when
developed, will allow banks, subscribers, and vendor companies to transact
business today at little or no cost. Management believes that its network,
when developed, will be capable of handling a high volume of transactions with
small, incremental costs to the financial institution or vendor companies, and
will compare favorably with networks charging large fees and achieving limited
success in market penetration or longevity. However, the technology supporting
"CheckBook" has not yet been fully developed. See "Risk Factors--CheckBook and
Business Browser are Unproven Technologies."
"TelOne." Alliance Net, Inc. d/b/a TelOne obtained a small portion of its
assets through the purchase of certain assets of two companies in which the
Nucleus shareholder previously owned a minority interest, American Teletronics
Long Distance, Inc. ("ATLD") and MetroLink Communications, Inc. ("MetroLink"),
at a public sale in April 1998. Alliance Net, Inc. purchased certain
inventory, office equipment and accounts receivable for $32,000. All cash
collections of purchased accounts receivable are shared evenly between
Alliance Net, Inc. and a secured creditor (Manatee Partners Limited
Partnership) of both ATLD and MetroLink. ATLD was a long distance
telecommunications reseller founded in 1990. In response to increasing
pressure on margins, ATLD embarked on the development of a proprietary long
distance telecommunications network via a joint venture with Teleport
Communications Group ("Teleport"), headquartered in Staten Island, New York.
Subsequent network problems of Teleport caused some resellers of the
network to experience millions of dollars of unauthorized and uncollectible
long distance usage. As a result, ATLD and MetroLink experienced financial
difficulties, and a second secured creditor sought to place ATLD into
involuntary bankruptcy. This action was subsequently dismissed by a bankruptcy
judge because there was a lack of assets to be realized. Both ATLD and
MetroLink ceased operations in August, 1997. The public sale of the assets of
these companies was held for the benefit of the first secured creditor of both
companies. The assets were purchased by Alliance Net, Inc. for $32,000 plus
fifty percent (50%) of all proceeds collected on outstanding debts of the
corporations. Alliance Net is not a party to litigation surrounding the
unauthorized long distance usage and the collection of payments related to the
receivables it collects.
TelOne currently resells telecommunications services, including long
distance, cellular, personal communication services (PCS), and paging
services. TelOne has a base of over 5,000 customers, generally small
49
<PAGE>
to medium-sized businesses. If the telecommunications needs of these customers
change, TelOne is able to provide competitive services through the utilization
of an effective distribution channel for suppliers of these services.
TelOne's customers rely on TelOne to obtain the best quality
telecommunication services at competitive pricing. TelOne's experience in the
telecommunications resale industry has enabled it to become very effective in
the acquisition of various telecommunication assets, such as customer bases
and accounts receivable. In this dynamic business, opportunities continually
arise. TelOne has the expertise to take advantage of these situations, as they
occur.
How Each System Is Intended to Work
Nucleus Computers. Management believes that Nucleus computers will provide
clients with an expedient and cost-effective method of custom building PC
workstations, networks, and software platforms using industry leader-
manufactured components branded with the "Nucleus Computer" name. Customers
will be able to pick and choose components over the Internet with which to
build a suitable computer or select components with the assistance of a
trained Nucleus technician.
Nucleus currently assembles manufactured components in building its Nucleus
branded computers. At present, Nucleus does not manufacture the components.
Nucleus directly and indirectly employs A+ certified computer professionals
and supplementary staff to assemble client computers.
Nucleus "Business Browser." The "Business Browser" is being developed as a
Nucleus-branded Internet access front-end tool that allows clients to directly
access frequently used web sites via a simplified user interface. The browser
will be segregated into seven sections, as follows: "CheckBook," a bill
payment and presentment platform; "Business Services," a provider of links to
host companies that perform general business services (i.e., Federal Express,
UPS, Amazon, Monsterboard Com, etc.); "Travel" will provide clients with
access to all major airlines' sites, hotel sites, and travel guides; the
"News" category gives clients direct access to CNN, "Bloomberg Reports," "The
Wall Street Journal" NYSE, NASDAQ, etc.; "Entertainment" will provide clients
with direct access to the latest theatrical events, trade shows, live feeds,
lotteries, restaurants, etc.; and "Nucleus" will cover Nucleus' major product
lines.
Nucleus views the browser as an all-important factor in the sale of its
Internet access products. The browser will be designed to be compatible with
both Microsoft and Netscape. However, the technology supporting "Business
Browser" has not yet been fully developed. See "Risk Factors--CheckBook and
Business Browser are Unproven Technologies."
"PC Express." "PC Express" provides clients with an expedient and cost-
effective method to gain hardware service for their computer systems.
Technicians, working in a centralized location, repair computers that are
picked up and returned by Nucleus drivers. This process saves customers time
and money by keeping the technicians' hourly rate charge tied to the actual
time it takes to repair the computer and eliminates expensive charges for
travel time. This process actually decreases a client's "down time" because
technicians can get to the computer quicker than if a visit had to be
scheduled.
"PC OnLine." "PC OnLine" instantly brings Nucleus' office to the customer's
desk, allowing certified technicians to remotely access a client's computer,
at their request, via modem or the Internet, to diagnose, install, and repair
software programs, operating systems, and data storage devices. Customers pay
a per minute rate for technical support instead of the industry standard
"hourly minimums." Windows and DOS operating systems will be supported
initially by PC Online. NDSI expects to support Macintosh in 1999.
"CheckBook." Management believes that "CheckBook" will provide a depository
into which multiple vendors can cost-effectively download rated billing
information via their existing bill-imaging systems. Customers can then
retrieve this information along with an aging summary for each of their
vendors. At this point, they can pay either all or a portion of their bills
directly to the vendor company with a credit or debit card. Customers
disputing a bill can then contact the appropriate vendor to receive a
corrected bill or credit. In either
50
<PAGE>
case, both the vendor and customer can react quickly and efficiently. The
technology supporting "CheckBook" has not yet been fully developed. See "Risk
Factors--CheckBook and Business Browser are Unproven Technologies."
"TelOne." TelOne acquires minutes of usage in bulk from the nation's
largest long distance, cellular, paging and local service providers. It then
resells this usage to residential and small to medium sized businesses.
Telemarketing
Nucleus' growth strategy includes the use of telemarketing services to
obtain customers. This methodology will be utilized in contacting residential
and commercial customers, and potential vendor company subscribers.
Billing Process
PC Express. Fees for hardware are billed upon delivery, while revenues for
service is billed and recognized as service is performed.
PC OnLine. Clients are billed a fee of $.90 to $2.00 per minute based on
the volume of minutes acquired. Typically, these charges are billed directly
to the end user's credit card. Revenue is recognized based upon usage.
CheckBook. The billing process will consist of charging subscribers an
initial set-up fee of $4.95 and, thereafter, a monthly fee of $2.95 to be
billed either directly to their credit card or automatically withdrawn from
their bank account. This fee may be waived at Nucleus' discretion. Nucleus
will not be involved in each CheckBook transaction other than to supply credit
card or bank information to vendor companies.
Management intends to bill vendor companies on a page-by-page basis. When a
vendor company's billing information has been verified and posted to the web
site, a fee will be due with terms of Net-30 days. Nucleus will not be
involved in the collection of vendor invoices. At this time, CheckBook's role
will be that of a postman only. In other words, a primary focus of CheckBook
will be to provide each subscriber with the ability to maintain control of
how, when, and to whom a bill is paid.
TelOne. TelOne's billing cycle begins when an account is sold by a TelOne
sales representative or agent. After submitting the account to the Local
Exchange Carrier and receipt of credit approval, the account is placed on the
TelOne service provider's network. The account then generates local and long
distance usage tracked by a call record reflecting that usage. TelOne receives
and aggregates bills, due within 45 days, having received billing tapes from
its service provider for all account usage. Approximately 3 business days
later, individual bills are sent from TelOne's billing house to each TelOne
customer. TelOne receipts are then sent to a lockbox by the customers.
Approximately 85% of customer invoices are paid within 45 days.
Regulatory
As the Internet becomes increasingly popular, it is possible that laws and
regulations may be enacted that would cover issues of user privacy, pricing,
content, characteristics, and quality of products and services.
The intrastate local and long distance telecommunications operations of
TelOne are subject to various state laws and regulations, including
certification requirements. Generally, TelOne must obtain Certificates of
Public Convenience and Necessity from the regulatory authorities in most
states where it offers services, and, in most of these jurisdictions, it must
file and obtain prior regulatory approval of tariffs for intrastate offerings.
At present, TelOne can provide originating service to customers in 49 states.
Of the states in which TelOne provides originating service, 38 have Public
Utility Commissions that actively assert regulatory oversight of the services
offered by TelOne.
There can be no assurances that the regulatory authorities, in one or more
states, or the FCC will not take action having an adverse effect on the
business or financial condition of TelOne.
Employees
Nucleus employs 16 full-time and 2 part-time employees.
51
<PAGE>
Facilities
Nucleus leases approximately 3,700 square feet of office space in Chicago,
Illinois, under a lease agreement expiring December 30, 1999, with an
unaffiliated third party. Nucleus believes its lease is at or below market
rates. Nucleus' financial obligation for its facilities is approximately
$5,900 per month.
Nucleus utilizes a portion of the office space to assemble computers.
Nucleus' present facilities are capable of handling four times Nucleus'
present demand. Additional facilities and personnel will be necessary for
additional growth.
NUCLEUS SELECTED FINANCIAL INFORMATION
The following tables summarize certain selected financial data, which
should be read in conjunction with Nucleus' consolidated financial statements
and related notes and "Nucleus' Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Proxy Statement. The selected financial data set forth below as of December
31, 1998 and 1997, and for the year ended December 31, 1998 and for the period
from April 30, 1997, (inception) through December 31, 1997, were derived from
Nucleus' audited financial statements. The audited financial statements of
Nucleus as of December 31, 1998, and for the period from April 30, 1997
through December 31, 1997, and the independent auditor's report thereon are
included elsewhere in this Proxy Statement.
Nucleus Holding Corporation
<TABLE>
<CAPTION>
April 30,
1997
(inception)
to
December 31, December 31,
1997(1) 1998
------------ ------------
<S> <C> <C>
Statement of Operations Data:
Sales................................................ $ 956,810 $2,827,428
--------- ----------
Cost of sales........................................ 672,343 1,747,403
Selling and marketing expenses....................... 86,000 367,579
Research and development expenses.................... 248,690 40,883
General and administrative expenses.................. 246,995 738,673
--------- ----------
Loss from operations................................. (297,218) (67,110)
Other income......................................... -- 35,008
--------- ----------
Net loss............................................. $(297,218) $ (32,102)
========= ==========
Net loss per share--basic and diluted................ $ (297.22) $ (32.10)
========= ==========
Weighted average number of shares outstanding--basic
and diluted......................................... 1,000 1,000
========= ==========
Other data:
Cash flows from:
Operating activities............................... $(226,521) $ 461,138
Investing activities............................... $ (40,722) $ (57,421)
Financing activities............................... $ 267,243 $ (379,626)
<CAPTION>
As of As of
December 31, December 31,
1997(1) 1998
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Working capital...................................... $(332,395) $ (372,440)
Total assets......................................... $ 689,482 $ 573,712
Long-term liabilities................................ $ -- $ --
Accumulated deficit.................................. $(297,218) $ (329,320)
Stockholder's deficit................................ $(294,218) $ (326,320)
</TABLE>
- --------
(1) Nucleus Holding Corporation commenced operations on April 30, 1997.
52
<PAGE>
NUCLEUS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Year Ended December 31, 1998, Compared to the Period from April 30, 1997,
(inception) Through December 31, 1997
Sales
Sales increased $1,870,618 from $956,810 in 1997 to $2,827,428 in 1998 and
primarily consist of revenue from TelOne, which resells telecommunication
services. This increase results from a full year of operations and an increase
in the volume of services provided Sales from PC Express, a new product line,
which began operations during the second quarter of 1998, totaled
approximately $198,248 for the period ended December 31, 1998.
Cost of Sales
Cost of sales totaled $1,747,403 for 1998, or 62 percent of sales. Although
cost of sales related to PC Express is less than that of Nucleus' other
services offerings, predominantly all sales for 1998 related to the resale of
long distance telephone services, for which cost of sales is approximately 63
percent. The cost of purchasing telecommunication services is Nucleus'
vendor's cost plus 7 percent.
Selling and Marketing
Selling and marketing expenses as a percentage of sales were 13 percent for
1998, consistent with Nucleus results for the period from inception to
December 31, 1997. Selling and marketing expenses consist of commissions
payable to agents selling telecommunication services and a fee paid to a third
party for billing services; consequently, in absolute dollars, selling and
marketing expenses increase as sales increase.
Research and Development Expenses
Research and development expenses decreased $207,807 from $248,690, in 1997
to $40,883 in 1998 because Nucleus has been slowly proceeding with the
development of CheckBook. Subsequent to its original investment to design the
CheckBook product, Nucleus has been focusing on other lines of business,
including PC Express.
General and Administrative Expenses
The increase was primarily related to the start-up of PC Express,
investment made to enhance its infrastructure and costs associated with the
AGV merger. General and administrative expenses increased $491,678 from
$246,995 in 1997 to $738,873 in 1998.
Income from Operations
As described above, Nucleus had a full twelve months of operations in 1998,
compared to a period in 1997, in which it was investing in CheckBook.
Other Income
Other income in 1998 relates to cash receipts in excess of the purchase
price of accounts receivable purchased from a bankrupt long-distance
telecommunications reseller in which Nucleus' shareholder previously owned a
minority interest. The agreement provides for Nucleus to receive 50% of all
accounts receivable collected. Nucleus paid $32,000 to purchase the assets.
Nucleus expects to collect at least an additional $37,700 over the next
thirteen months based on signed collection agreements related to those
receivables.
53
<PAGE>
Net Income
As a result of proceeds received from the collection on purchased
receivables, Nucleus generated net income for the year ended December 31, 1998
compared to a loss in 1997 which resulted from Nucleus' investment in
CheckBook.
April 30, 1997 (inception) compared to December 31, 1997
Nucleus began the development of CheckBook in May, 1997, and incurred a
total of $248,690 in research and development costs for this product from
inception to December 31, 1997. The product has not been determined to be
technologically feasible as of December 31, 1997, or to date.
In October, TelOne began reselling long-distance telecommunications
services. 100% of Nucleus sales in 1997 related to the resale of long-distance
service.
Nucleus incurred a net loss of $297,218 for the period from inception to
December 31, 1997, as a result of its investment in research and development
of CheckBook and start up costs of the TelOne operations. In addition, TelOne
was only operational for three months.
Related Party Transaction
The Company's shareholder previously owned a minority interest in American
Teletronics Long Distance, Inc. (ATLD) and a majority interest in MetroLink
Communications (MetroLink). In both instances the Company's shareholder
relinquished ownership in these entities for no consideration prior to each
company ceasing operations. On April 13, 1998, Alliance Net, a wholly owned
subsidiary of Nucleus, purchased certain assets from a secured creditor
(Manatee Partners Limited Partnership) of ATLD and MetroLink. Such assets
consisted of inventory, office furniture and equipment, and one half of the
cash collected from any accounts receivable which existed on that date. The
assets were purchased at a fair market value of $32,000 determined through a
public auction format. Therefore, this transaction was made on terms no less
favorable to Nucleus than could have been obtained from an unaffiliated third
party.
Liquidity and Capital Resources
Working capital at December 31, 1998, totaled ($372,440) compared to
($332,395) on December 31, 1997. During 1997, Nucleus' shareholder advanced
funds totaling $249,356 in the form of an unsecured, non-interest bearing loan
due on demand, to provide liquidity for its operations. Such funding, in
addition to cash generated from operations, has been sufficient to enable
Nucleus to meet its obligations. During the year ended December 31, 1998
Nucleus generated $429,138 in cash flows from operating activities. Currently,
Nucleus does not maintain any financing arrangement with any lending
institution. As December 31, 1997, Nucleus owed its shareholder $249,356.
During 1998, Nucleus repaid the shareholder loan. As of December 31, 1998,
Nucleus had advanced $115,383 to the shareholder. This shareholder advance is
unsecured, non-interest bearing was repaid as of March 9, 1999.
Nucleus does not currently have any capital funding commitments. Funding
for the next twelve months is expected to come from operations of the
business. The shareholder is willing to provide additional funding for
liquidity purposes, if necessary. In addition, Nucleus may seek debt and
equity financing to provide additional liquidity.
Nucleus has temporarily discontinued funding the development of CheckBook
and the Business Browser to focus on its core operations with respect to
reselling telecommunication services and providing computer installation and
integration services. Nucleus' shareholder does not currently intend to fund
these research and development activities. Additionally, the Combined Company
currently expects that any future funding of such activities would need to be
provided by cash from operations. Neither CheckBook nor Business Browser has
reached technological feasibility and the Combined Company currently believes
additional investment would
54
<PAGE>
need to be made for such products to reach a technologically feasible state.
Since the development of these products has been temporarily discontinued the
Combined Company does not anticipate such products to become technologically
feasible in the foreseeable future.
New Accounting Pronouncements
There are no recent accounting pronouncements which have not been adopted
by Nucleus or which will be required to be adopted by Nucleus, which are
expected to have a significant effect on Nucleus' financial statements.
Year 2000 Compliance
The Year 2000 Issue. In the next year and a half, most large companies will
face a potentially serious problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the Year 2000. This problem could force information systems
to either
shut down or provide incorrect data and information. Nucleus began the process
of identifying the necessary changes to its computer programs and hardware as
well as assessing the progress of its significant vendors in their remediation
efforts in late 1997. The discussion below details Nucleus efforts to ensure
Year 2000 compliance.
Nucleus' State of Readiness. Nucleus has begun identifying and evaluating
the readiness of its internal and third party informational and non-
informational technology systems, which, if not Year 2000 compliant, could
have a direct major impact to Nucleus.
Nucleus' evaluation to date has identified the following areas which could
be impacted: (i) third party bill processing, (ii) third party providers of
long distance telephone services, and (iii) Nucleus' internal information
technology environment.
The Company is highly dependent on third party vendors to provide long
distance telephone services and billing support. Actual telephone services and
bill processing is provided by WilTel and Connect America, respectively.
Nucleus is currently evaluating each of these third parties compliance with
Year 2000 matters. Connect America has represented to Nucleus that it has
replaced hardware which was not Year 2000 compliant in June 1998. Nucleus is
planning to engage a third-party consultant to test Nucleus' internal systems
and to test the systems and programs used by Connect America for their
business with Nucleus.
Based on its assessment and vendors' representations, Nucleus believes that
the systems of its significant third party vendors of long distance telephone
service and billing will be Year 2000 compliant before the year 2000.
Nucleus operates in a PC-based environment, and relies entirely on third
party software such as Microsoft OfficeSuite(TM), Quickbooks(TM) and
Goldmine(TM). All Windows-based products such as Microsoft OfficeSuite(TM)
have been certified by the vendor or checked for Y2000 compliance by Nucleus
in-house staff. Certain other applications have not yet been tested or
certified. Nucleus plans to engage a third-party consultant to perform
additional in-house testing in February, 1999. Nucleus is currently running
its financial systems on two parallel systems, one of which is one month in
arrears. This is being done in order to provide a recent backup in the event
of a major systems failure.
The Risks of Nucleus' Year 2000 Issues. Nucleus believes the greatest Year
2000 compliance risk, in terms of magnitude, is that third party vendors may
fail to complete remediation efforts in a timely manner and that telephone
service and customer billing could be interrupted for a period of time. In a
worst-case scenario, ConnectAmerica would not be able to capture billing data
and WilTel would not be able to provide telephone services. If either
situation were to occur, Nucleus would not have any revenues related to their
telecommunications business. Nucleus is unable to predict the likelihood of
this risk occurring.
55
<PAGE>
Costs of Year 2000 Compliance. Nucleus has spent approximately $1,000 to
date investigating their Year 2000 compliance. Total costs for Year 2000
compliance are expected to be $5,000 or less.
Contingency Plans. At this time, Nucleus fully expects to be Year 2000
compliant and is satisfied that its significant vendors are or will be
compliant. While the Company fully expects all of its informational and non-
informational technology systems to be compliant by the Year 2000, it is
beginning to develop contingency plans in the event one or more of its
identified areas of concern are not compliant. Nucleus does not believe that
the total costs of such Year 2000 compliance activities will be material.
NUCLEUS STOCK
All of the 1,000 outstanding shares of Nucleus Common Stock are held by
CapitalOne Holdings, Inc., an Illinois corporation ("CapitalOne"). John C.
Paulsen is the owner of all of the outstanding shares of CapitalOne.
STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be considered for inclusion in
Nucleus' proxy statement and form of proxy relating to the 1999 Annual Meeting
of Stockholders, the proposal must be received by Nucleus no later than June
23, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
James A. Scheifley & Associates, P.C. have been the independent auditors
for AGV since 1992. A representative of James A. Scheifley & Associates, P.C.
will be available by teleconference at the AGV Meeting and will respond to
appropriate questions from stockholders.
EXPERTS
The Consolidated Financial Statements of AGV at December 31, 1998 and 1997
included and incorporated in this Proxy Statement have been audited by James
A. Scheifley & Associates, P.C. independent public accountants as indicated in
their report with respect thereto and are included and incorporated herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The consolidated financial statements of Nucleus Holding Corporation and
Subsidiaries as of December 31, 1998 and 1997, and for the year ended
December 31, 1998 and for the period from April 30, 1997 (inception) to
December 31, 1997, included in this Proxy Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
OTHER MATTERS
The AGV Board knows of no other business that will be presented at the
Meeting. If any other business is properly brought before the Meeting it is
intended that proxies in the enclosed form will be voted in respect thereof in
accordance with the judgment of the persons voting the proxies. WHETHER OR NOT
YOU INTEND TO BE PRESENT AT THE MEETING YOU ARE URGED TO COMPLETE SIGN AND
RETURN YOUR PROXY PROMPTLY.
BY ORDER OF THE BOARD
Christopher S. Walker, Secretary
March 19, 1999
Chicago, Illinois
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Nucleus, Inc. (formerly American General Ventures, Inc.) Page
- -------------------------------------------------------- ----
<S> <C>
Annual Report on Form 10-KSB for the year ended December 31, 1998......... F-2
<CAPTION>
Nucleus Holding Corporation
- ---------------------------
<S> <C>
Report of Independent Public Accountants.................................. F-28
Consolidated Balance Sheet at December 31, 1998 and 1997.................. F-29
Consolidated Statement of Operations for the year ended December 31, 1998
and for the period from April 30, 1997 (Inception) to December 31, 1997.. F-30
Consolidated Statement of Shareholders' Deficit for the year ended
December 31, 1998 and for the period from April 30, 1997 (Inception) to
December 31, 1997........................................................ F-31
Consolidated Statement of Cash Flows for the year ended December 31, 1998
and for the period from April 30, 1997 (Inception) to December 31, 1997.. F-32
Notes to Consolidated Financial Statements................................ F-33
</TABLE>
F-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 0-14039
Nucleus, Inc.
(formerly known as American General Ventures, Inc.)
(Name of Small Business Issuer in its charter)
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
NEVADA 11-2714721
(State of incorporation) (I.R.S. Employer Identification No.)
3650 Austin Bluffs Parkway--Suite 138
Colorado Springs, Colorado 80918
(Address of principal executive offices) (Zip Code)
Registrant telephone number, including area code: (719) 548-1616
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Check whether the Company (l) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Company's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
The Company's revenues for its most recent fiscal year. $747,144.
As of March 8, 1999, the market value of the Company's voting $.001 par
value common stock held by non-affiliates of the Company was $326,930.
The number of shares outstanding of Company's only class of common stock,
as of March 26, 1999 was 1,129,827 shares of its $.001 par value common stock.
Check whether the Issuer has filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes X No
No documents are incorporated into the text by reference.
Transitional Small Business Disclosure Format (check one) Yes No X
F-2
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
FORM l0-KSB/A
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(a) General Development of Business
(a) (1) The original purpose of American General Ventures, Inc. (AGV) was
to seek potential business ventures, which in the opinion of the management of
AGV would provide a profit for AGV. Such involvement would be either as the
acquisition of existing businesses or the acquisition of assets to establish a
subsidiary business for AGV. AGV changed its name to Nucleus, Inc. on December
8, 1998. The name AGV will be used for simplicity purposes and ease of
reference throughout the remainder of this document.
On January 22, l986, AGV signed a letter of intent with Aspen Medical
Diagnostics, Inc. and Neuro-Medical, Inc., both Utah Corporations, to acquire
all of the stock of both of those companies in exchange for 1,000,000 shares
of the common stock of AGV to the shareholders of each of the acquired
companies or a total of 2,000,000 shares. Both acquired companies were in the
business of establishing medical diagnostic facilities.
On September 11, 1987, AGV acquired all of the stock of ACI Micro Systems,
Inc., a Colorado Corporation. ACI Micro Systems, Inc. was in the business of
selling computer and computer accessories manufactured by third parties.
In January 1991, AGV incorporated Your ATTACHE, a wholly owned subsidiary.
Your ATTACHE develops and sells licenses of powerful high speed computer
systems that provides a mutually beneficial communication and interaction
medium between suppliers and consumers. Your ATTACHE is not active and had no
revenues in 1998.
The Company has not been involved, during the year ended December 31, l998,
in any bankruptcy, receivership or similar proceedings.
(a)(2) Not applicable.
(b) Financial Information About Industry Segments
AGV has engaged in a single line of business since September 11, 1987, when
the Company acquired ACI Micro Systems. The Company engages in the business of
selling computers and computer accessories manufactured by third parties.
(c) Narrative Description of Business
(c)(1)(i) AGV on January 29, 1986, acquired 100 percent of the outstanding
stock of Neuro-Medical, Inc. (Neuro) and Aspen Medical Diagnostics, Inc.
(Aspen), both Utah corporations. The letter of intent for said purchase was
executed on the 22nd day of January, 1986. In exchange, AGV issued 1,000,000
of its restricted shares to the stockholders of Aspen and 1,000,000 of its
restricted shares to the stockholders of Neuro.
The business of Neuro and Aspen was to establish and operate neurological
diagnostic centers that provide diagnostic testing for physicians and others
in the medical community. The Company made available to the medical community
the latest neurological testing and assessment equipment. The officers of AGV
for eight years used the Brain Electrical Activity Mapping System (BEAM) which
was developed at Harvard University Medical School. The officers of AGV
selected the BEAM system because they believed that the system represented a
significant advancement over alternative equipment being used for neurological
testing in the overall treatment of patients. However, the technology faced
resistance from the medical community which created a negative impact upon the
growth of AGV. AGV ceased to operate its BEAM centers in 1993.
F-3
<PAGE>
Current Operations
AGV continues to operate ACI Micro Systems, Inc., (ACI), a Colorado
Corporation, that sells computers and accessories which are manufactured by
other parties.
Wal-Mart
AGV has had two vendor agreements with Wal-Mart. The first agreement,
entered into during August, 1995, was a resale agreement for Wal-Mart to sell
AGV computers in their retail stores. The agreement contained provisions which
eventually proved disadvantageous to AGV.
This initial agreement with Wal-Mart incorporated a "sale guarantee" from
AGV to Wal-Mart which gave Wal-Mart customers 15 days to return a computer,
for any reason. Wal-Mart, at its discretion, could either sell the computer
again, or return it to AGV for a full refund, which was effected as a debit
entry on amounts due AGV from Wal-Mart. The second component of the guarantee
allowed Wal-Mart to return unsold computers to AGV for a full refund.
AGV management and Wal-Mart's corporate buyer of computer products agreed
that certain Wal-Mart stores were abusing the guarantee provisions. Individual
Wal-Mart stores were directed by corporate staff to discontinue returning
unsold computers to AGV for credit. This agreement was terminated by mutual
agreement in April, 1997.
A subsequent agreement between the companies was signed in June, 1997. This
agreement permitted AGV to sell its computers from Wal-Mart's web site, Wal-
Mart Online. There was no sale guarantee provision in the agreement, however
the customer received the right to return the equipment within fifteen (15)
days of purchase for a full refund. Customers experiencing problems after
expiration of the 15 day period were directed to call AGV tech support. In
instances where technical problems could not be corrected on a telephone call,
the computer would be shipped to AGV for repair.
Concerns were expressed by Wal-Mart regarding the quality of AGV's products
and technical support, and by AGV regarding Wal-Mart's adherence to
exclusivity provisions in the vendor agreement. AGV was also concerned with
suspected violations by Wal-Mart of the fifteen (15) day return deadline
policy. Due to these and other operational problems under the agreement, on
October 30, 1998, both parties agreed to suspend sales until their problems
could by resolved. As of this date a new agreement has not been consummated.
Proposed Operations
Subsequent to the termination of the Wal-Mart agreement, AGV has been
refocusing its efforts to generate sales from its own website--a strategy
which management believes will offset a portion of the revenue lost from the
termination of the Wal-Mart agreement. ACI has developed its own website
(www.availpc.com) ACI pays a fee to Hotmail, a free internet email service
wholly-owned by Microsoft, to promote its computer systems. These banner ads
enable Hotmail customers to link to AGV's website to purchase computer
systems.
AGV does not expect the revenue generated from its website sales to fully
replace the revenue lost from the Wal-Mart agreement.
The ACI Micro Computer Systems
ACI Micro Systems, Inc., manufactures, through outsourcing, non-integrated
circuitry computer systems that allows true upgradability. ACI presently has a
capacity of assembling 15,000 computers per month.
Seasonality
AGV's business is not considered seasonal.
F-4
<PAGE>
Backlog
As of December 31, 1998, AGV was able to fill all orders and did not have
any backlog orders.
Competition
AGV's sales operations face stiff competition from existing manufacturers
and sellers of computers. AGV has met the competition in the past with its
niche in the computer industry. Through third party manufacturers, ACI is able
to sell computers that will be assembled in America and still be competitive
with computers built in foreign countries. AGV's computers are built in
America giving AGV a competitive edge to resellers whose philosophy mirrors
that of AGV. In addition to "Made in America" AGV sells computers with non-
integrated circuitry that allows true upgradability and local service and
support.
ACI's Build-To-Order (BTO) program has an advantage over the larger
computer manufacturers because it gives the consumer more choices and lower
prices. The customer is able to build a computer system for less than $1,000.
This is not possible with some of the larger firms because their standard
systems contain components that the consumer may not want. Limited choices
result in higher prices for computer systems.
AGV does not have an established customer service program as compared to
its competitors--some of which have 24 hour, 7 day service and substantially
more capital resources than does AGV. The Company's customer service can best
be described as limited as AGV does not have the systems, personnel, or
capital to establish a high end customer service operation. The inability to
provide comprehensive customer service may have a negative impact on AGV's
ability to compete in its industry and may also have an adverse effect on
AGV's operating results.
Research and Development
Since its inception, AGV has spent $193,370 for company sponsored research
and development of the Your ATTACHE concept.
Compliance with Environmental Regulations
Management of AGV believes that compliance with federal, state, and local
provisions regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment will have no material
effect on the capital expenditures, earnings and competitive position of AGV.
Employees
AGV employs a total of five persons: a chief executive officer, a chief
operating officer, and two full-time and one part-time technicians and/or
assemblers.
Foreign Operations
AGV had no foreign operations or export sales during fiscal year 1998.
ITEM 2 DESCRIPTION OF PROPERTIES
AGV currently occupies approximately 2,000 square feet at 3650 Austin
Bluffs Parkway, Suite 138, Colorado Springs, Colorado. AGV pays $2,110 plus
utilities for rent for the Austin Bluffs facility. The lease for the Austin
Bluffs space will continue until May 1, 1999. AGV has two five year options on
the Austin Bluffs space.
F-5
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
The Company has disputes in the normal course of operations with a number
of its suppliers. Such matters typically relate to vendors requesting payment
on product delivered to the Company, which the Company believes is either
defective or product which had not been ordered from such vendor.
The Company was notified on December 31, 1998 of a collection action filed
against it by Pony Computer, Inc. in the amount of $117,000 for payment on
certain products shipped to ACI by Pony. Management believes that the case was
filed in the wrong jurisdiction and has filed a motion to dismiss. No ruling
on this motion is expected prior to May 1, 1999. Management believes the case
is without merit and expects to aggressively defend the action if its motion
for dismissal is denied.
During 1997, ACI was sued by a supplier, Cal IC, for $27,500, plus
attorneys' fees and costs for payment on certain products shipped to ACI by
Cal IC. The Company's management believed that much of the product received
from Cal IC was either defective or the wrong products were shipped. Cal IC
refused to credit the Company's account or accept the return of product for a
credit. This matter was settled in 1998 at a mediation session for $22,000,
$12,000 payable in cash, with the balance due in equal monthly installments
over ten months. The Company has an account payable for the outstanding
portion of the payments due in the amount of $6,000 had has recorded an
extraordinary gain on the settlement in the amount of $5,500 ($3,630 net of
tax).
During 1997, the Company had a disputed payable balance with one of its
suppliers, Worldnet. Worldnet alleged that the Company owed them $102,445 for
payment on certain products shipped to the Company by Worldnet. The Company's
management believed that much of the product received from Worldnet was either
defective or the wrong products were shipped. Worldnet refused to credit the
Company's account or accept the return of product for a credit. This matter
was settled in 1998 from negotiation between the two parties for $32,000. The
Company has recorded an extraordinary gain related to the settlement of the
disputed payable in the amount of $70,445 ($46,495 net of tax).
During 1997, the Company had disputed payable balances with two additional
suppliers aggregating a total of $51,000. Both claims have been dormant since
December 1998. Management believes that such claims will be successfully
negotiated and will likely result in settlement at reduced amounts.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The following table sets forth, for the calendar quarters indicated ended
March 31, June 30, September 30, and December 31, the range of high and low
bid quotations per share of AGV Common Stock as reported by NASD on the Over-
The-Counter Electronic Bulletin Board. Prior to December 8, 1998, Nucleus,
Inc. was known as American General Ventures, Inc.
On November 4, 1998 the last full trading date prior to the joint public
announcement by AGV and Nucleus of the signing of the Merger Agreement, the
average of the last reported high and low bid quotations reported by NASD on
the Over-The-Counter Electronic Bulletin Board (OTC-BB) for the AGV Common
Stock was $2.20 per share. Based upon the Exchange Ratio of 5,307,109 shares
of AGV Common Stock for one share of Nucleus Common Stock and the AGV market
price, the equivalent market price per share of Nucleus Common Stock as of
November 4, 1998, based upon the Exchange Ratio, would have been $11,675.64.
On March 8, 1999, the
F-6
<PAGE>
most recent practicable date prior to the printing of this Proxy Statement,
the average of the last reported high and low bid quotations on the OTC-BB for
AGV Common Stock was $0.83 per share, and the equivalent market price per
share of Nucleus Common Stock based upon the Exchange Ratio would have been
$4,404.90. These prices have been adjusted to reflect the a one-for-ten
reverse stock split effective December 11, 1998. The quotations, which reflect
prices among dealers, do not reflect retail markups, markdowns, or other fees
or commissions, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
AGV Common Stock
----------------
Period High Bid Low Bid
------ -------- -------
<S> <C> <C>
1997
1st Quarter............................................ $ 4.60 $1.50
2nd Quarter............................................ $ 5.60 $1.50
3rd Quarter............................................ $ 4.30 $2.10
4th Quarter............................................ $12.80 $2.50
1998
1st Quarter............................................ $ 2.90 $2.20
2nd Quarter............................................ $ 3.20 $2.60
3rd Quarter............................................ $ 3.30 $3.10
4th Quarter............................................ $ 2.50 $2.10
1999
* 1st Quarter (through March 8, 1999).................... $ 2.00 $0.62
</TABLE>
The approximate number of record holders of the Company's common stock on
December 31, 1998 was 1,200.
The Company has paid no dividends with respect to its common stock. There
are no contractual restrictions on the Company's present or future ability to
pay dividends. The Company has not had earnings that indicate an ability to
pay cash dividends. The Company does not expect to pay dividends in the
foreseeable future.
ITEM 6 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
AGV's primary business and source of revenue is derived from the resale of
computer systems and related products which are manufactured and/or assembled
by third parties. Revenues for the year ended December 31, 1998 increased 4
percent to $747,144 compared to $721,745 in 1997. The increase in revenue was
primarily related to AGV experiencing steady sales volume through Wal-Mart
Online (up until the termination of the agreement) and the Company's ability
to generate orders through its own website (www.availpc.com). AGV's sales
derived from Wal-Mart were approximately 41 percent and 58 percent for 1998
and 1997, respectively.
AGV has had two vendor agreements with Wal-Mart. The first agreement
(entered into in August, 1995) was a resale agreement for Wal-Mart to sell AGV
computers in their retail stores. The first agreement was terminated by mutual
consent in April, 1997. The second agreement (entered into in June, 1997)
permitted AGV to sell its computers from Wal-Mart's website, Wal-Mart Online.
The second agreement was terminated on October 30, 1998 by mutual consent of
both parties as Wal-Mart was concerned over the quality of AGV's products and
its customer service and AGV suspected violations of customer return policies.
As of this date a new agreement has not been consummated.
The discontinuance of the Wal-Mart agreement, and loss of the associated
revenue, has and will continue to have a severe adverse effect on AGV's
results of operation, liquidity and capital resources. Consequently, results
of operations for any previous period should not be relied upon as indicative
of expected operating performance for any future period.
F-7
<PAGE>
The satisfaction of AGV's customers is dependent on the customer receiving
a quality product meeting their specifications. AGV's two primary system
providers for the Wal-Mart agreement employed different product delivery
techniques. The Company believes its relationship with Pony Computers and the
delivery format used by Pony resulted in poor customer satisfaction.
Pony Computers fulfilled a majority of AGV's orders related to Wal-Mart
Online and orders made through Wal-Mart's web site. Pony delivered these
systems to customers using a drop shipment technique. Although AGV monitored
the administrative matters involved in the shipment (e.g., correct shipping
address), and handled post delivery service, AGV was unable to examine the
systems for proper componentry or test and inspect the systems to ensure
functionality prior to a customer delivery. AGV, and its customers, often
experienced significant quality problems (e.g., systems not operating
properly, incorrect components, etc.) with Pony's systems. AGV's management
believed that the poor quality of systems shipped by Pony caused the
termination of the second Wal-Mart agreement referred to above. As a result,
AGV discontinued its use of Pony to fulfill its system requirements in
November, 1998. AGV continues to purchase systems from Aberdeen Trading as
well as other system providers.
The primary cost component of revenue is the cost AGV incurs by purchasing
these computer systems and products from third parties. AGV does not currently
maintain a contractual relationship with any system provider, electing to
submit individual purchase orders to such system providers for price quotes
upon receipt of a customer order. Prices are generally established by a system
provider from a price list dependent upon the components and/or systems
requested by a customer. Although no contractual relationships exist, AGV has
historically used Pony Computer and Aberdeen Trading to fulfill its internet
generated orders.
Cost of sales for the year ended December 31, 1998 increased 12 percent to
$769,754 compared to $690,064 in 1997. Cost of sales as a percentage of
revenue was 103 percent during 1998 compared to 96 percent during 1997. The
increase in cost of sales was primarily a result of a write-down of inventory
totaling $109,855 to record AGV's inventory at net realizable value.
Selling, general, and administrative expense (S,G,&A) for the year ended
December 31, 1998 increased 6 percent to $455,857 compared to $429,212 in
1997. S,G,&A as a percentage of revenue was 61 percent during 1998 compared to
59 percent during 1997. The increase in S,G,&A was primarily related to AGV
issuing equity instruments for services rendered at values less than the fair
value of such equity instruments.
During 1997, AGV was involved in claims concerning disputed payable
balances totaling $129,945 with two suppliers. In 1998, the claims were
settled for $54,000, resulting in an extraordinary after-tax gain of $50,125.
AGV's net loss decreased 3 percent to $416,424 for the year ended December
31, 1998, compared to $430,921 in 1997. The loss per share was $0.38 for 1998
compared to $0.45 for 1997. The loss in 1998 was primarily due to the
inventory writedown and the issuance of equity instruments as discussed above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues for the year ended December 31, 1997 decreased 48 percent to
$721,745 compared to $1,397,850 in 1996. The decrease in revenue was primarily
related to AGV altering its selling format with Wal-Mart from a retail store
format to an Online storefront format through Wal-Mart Online. Wal-Mart Online
was in the development stages during 1997 and AGV did not experience sales
through this format for almost two months during 1997.
Cost of sales for the year ended December 31, 1997 decreased 49 percent to
$690,064 compared to $1,365,308 in 1996. Cost of sales as a percentage of
revenue was 96 percent during 1997 compared to 98 percent during 1996. The
decrease in cost of sales was primarily related to Wal-Mart returning fewer
computers during 1997 than during 1996 and AGV's decision to focus its selling
efforts through Wal-Mart Online rather than through the retail store format.
F-8
<PAGE>
Selling, general, and administrative expense (S,G,&A) for the year ended
December 31, 1997 decreased 39 percent to $429,212 compared to $701,032 in
1996. S,G,&A as a percentage of revenue was 60 percent during 1997 compared to
50 percent during 1996. AGV was able to decrease the amount of S,G,&A expense
in 1998 by focusing on Internet related sales as opposed to sales through
retail stores.
AGV's net loss decreased 40 percent to $430,921 for the year ended December
31, 1997, compared to $723,911 in 1996. The loss per share was $0.45 for 1997
compared to $0.79 for 1996. The decrease in loss was primarily due to AGV's
ability to partially increase margins from focusing sales efforts on its
Internet format and reducing S,G,&A costs as discussed above.
Liquidity and Capital Resources
December 31, 1998
Working capital (current assets less current liabilities) at December 31,
1998 totaled ($320,887) compared to ($142,243) at December 31, 1997. The
decrease in working capital was primarily related to a writedown of $109,855
to record inventory at its net realizable value and the net loss incurred by
AGV for the year ended December 31, 1998.
AGV has not derived any revenue from Wal-Mart subsequent to the termination
of their agreement on October 30, 1998. AGV believes that the loss of the Wal-
Mart agreement, and the associated revenues, will have a severe adverse effect
on the Company's future liquidity. The Company is refocusing its efforts to
generate sales from its own website--a strategy which management believes will
generate cash flow from operations and enable the Company to offset a portion
of the revenue lost from the termination of the Wal-Mart agreement. AGV does
not expect the revenue generated from its website sales to fully replace the
revenue lost from the Wal-Mart agreement.
AGV also expects to seek additional sources of capital to continue to fund
operations while management refocuses its efforts away from its "Wal-Mart
Strategy" and concentrate on promoting sales on its own website. AGV believes
that by re-focusing its efforts toward generating sales from its own website
and by aligning itself with quality system providers will enable AGV to offset
a portion of the revenue lost from the Wal-Mart business.
The satisfaction of AGV's cash requirements during 1999 and thereafter will
depend in large part on AGV's ability to successfully generate sales on its
own website and raise capital to fund operations. There can, however, be no
assurance that sufficient cash will be generated from operations or that
unanticipated events requiring the expenditure of funds will not occur.
As a result, AGV expects to aggressively seek additional sources of funds,
the form of which will vary depending upon prevailing market and other
conditions and may include short or long-term borrowing or the issuance of
debt or equity securities. Additionally, the Company's President has
historically provided working capital advances to the Company. There can be no
assurance that AGV will be able to obtain such funding, or if such funding is
available, that it will be on favorable terms.
On October 30, 1998 the Company entered into a merger agreement with
Nucleus Holdings, Inc. (Holdings) whereby all of the outstanding shares of
Holdings would be exchanged for 5,307,109 newly issued Company shares. The
merger is intended to qualify as a tax-free reorganization, as permitted by
the Code and pooling-of-interests for accounting and financial reporting
purposes. Completion of the transaction is subject to, among other things, the
approval of AGV's stockholders.
F-9
<PAGE>
December 31, 1997
Working capital (current assets less current liabilities) at December 31,
1997 totaled ($142,243), compared to ($149,544) at December 31, 1996. The
change in working capital was primarily related to the Company's Chairman
converting $500,000 in debt owed to him by the Company to equity through the
issuance of 50,000 shares at $10.00 per share, which was offset by the net
loss incurred by AGV for the year ended December 31, 1997.
AGV currently has no commitments for capital expenditures.
ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following financial statements and supplemental data for the Company
and independent auditors' report for the year ended December 31, 1998 are
filed as part of this report on Form 10-KSB/A.
Report of Certified Public Accountants
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the years ended December 31, 1998 and 1997
Statement of Stockholder's Equity for the years ended December 31, 1998
and 1997
Statements of Cash Flows for the years ended December 31, 1998 and 1997
Notes to the Financial Statements
ITEM 8 CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Identification of Directors and Executive Officers.
<TABLE>
<CAPTION>
Dates of
Name Position held with Company Age Service
- ---- ------------------------------------ --- ---------
<S> <C> <C> <C>
Steven H. Walker............. President, Chair of the Board, 59 1985-1998
Chief Executive Officer and Director
Christopher S. Walker........ Secretary-Treasurer, Chief Operating 28 1996-1998
Officer, and Director
</TABLE>
STEVEN H. WALKER, has been President, Chair of the Board and Chief
Executive Officer of the Company since January l986 and has been Vice
President and Chair of the Board of Neuro-Medical, Inc. and President and
Chair of the Board of Aspen Medical Diagnostics, Inc. since 1983 and 1984
respectively. He is also a licensed psychologist who was in private practice
for 15 years. He is a past president of the El Paso County Psychological
Society. He received a Ph.D. from the University of Wyoming in l972.
CHRISTOPHER S. WALKER, has been Secretary/Treasurer, Director on the Board
and Chief Operating Officer since August 1996. He has been an employee of the
Company since 1988 and has held positions of Transfer Agent and Marketing
Director. Mr. Walker received a Bachelor of Science degree in Business
Administration from the University of Northern Colorado in 1990.
F-10
<PAGE>
Section 16 of the Securities Exchange Act of 1934, as amended (the "Act"),
requires the Company's officers (as defined under Section 16) and directors
and persons who own greater than 10% of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with
the Securities and Exchange Commission (the "Commission"). Based solely on a
review of the forms it has received and on written representations from
certain reporting persons that on such forms were required for them, the
Company believes that, during 1998, all Section 16 filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with by such persons.
ITEM 10 EXECUTIVE COMPENSATION
The following table discloses compensation received for the three fiscal
years ended December 31, 1998 by the Company's Chief Executive Officer. The
Company's other executive officer did not receive compensation (combined
salary and bonus) in excess of $100,000 for 1998.
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
---------------------
Name and Principal Fiscal Annual Securities Underlying
Position Position Held Year Salary Bonus(1) Warrants (#) (2)
- ------------------ ---------------------------- ------ ------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Steven H. Walker........ President, CEO, and Chairman 1998 $63,000 $-- 11,900
1997 63,000 -- --
1996 63,000 -- --
</TABLE>
- --------
(1) Steven Walker was entitled to a bonus in the amount of 10% of any net
profits of the Company. No bonuses were paid for the years presented. As
of October 30, 1998, the contingent bonus arrangement had been
discontinued.
(2) The amounts disclosed in this column include warrants issued to the Chief
Executive Officer for the periods indicated.
COMPENSATION PURSUANT TO STOCK OPTIONS/WARRANTS
No stock options were granted to the Company's Chief Executive Officer
during fiscal 1998 (or any prior fiscal year), however the Company granted an
aggregate of 11,900 warrants to purchase 11,900 shares of the Company's common
stock to the Company's Chief Executive Officer during fiscal 1998.
<TABLE>
<CAPTION>
Number of Securities Percent of Total
Underlying Warrants Warrants Granted Exercise
at Fiscal Year End to Employees in Price Expiration
Name Position Held (#) Fiscal Year ($/share) Date
- ---- ---------------------------- -------------------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Steven H. Walker........ President, CEO, and Chairman 11,900 12.95% $5.00 5/15/03
</TABLE>
AGGREGATE OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUES
The following table provides information on warrants held by the Company's
Chief Executive Officer at December 31, 1998. The Chief Executive Officer did
not exercise any warrants in 1998 and none of his warrants were in-the-money
at December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised
Warrants at Fiscal
Year End (#)
Warrants -------------------------
Name Position Held Issued (#) Exercisable Unexercisable
- ----- ---------------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Steven H. Walker........ President, CEO, and Chairman 11,900 11,900 --
</TABLE>
Outside directors of AGV do not receive any cash compensation for their
services as directors.
F-11
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of December 31, 1998,
regarding the beneficial ownership (as defined by the Securities and Exchange
Commission) of AGV Common Stock of (i) each person known by AGV to own
beneficially more than five percent of outstanding AGV Common Stock; (ii) each
director of AGV; (iii) each executive officer named in the Summary
Compensation Table; and (iv) all directors and executive officers of AGV as a
group. Except as otherwise specified, the named beneficial owner has sole
voting and investment power over the shares listed.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage of
Name of Beneficial Owner Ownership(1) Common Stock
- ------------------------ ------------ -------------
<S> <C> <C>
Steven H. Walker.................................... 497,540(2) 44.0%
3650 Austin Bluffs Parkway
Colorado Springs, CO 80918
Christopher S. Walker............................... 196,880(3) 17.4%
3650 Austin Bluffs Parkway
Colorado Springs, CO 80918
Adriann Belinne..................................... 100,000(4) 8.1%
11 Stowe Lane
Menlo Park, CA 94025
Jeffrey Frient...................................... 100,000(4) 8.1%
828 Foxdale Avenue
Winnetka, IL 60093
All directors and executive officers as a group (4
persons)........................................... 794,420(5) 64.6%
</TABLE>
- --------
(1) Amounts have been adjusted to reflect AGV's 10 for 1 stock split effective
December 11, 1998.
(2) Includes 11,900 Shares that may be purchased upon exercise of a warrant.
(3) Includes 80,000 Shares that may be purchased upon exercise of warrants.
(4) Consists of 100,000 shares that may be purchased upon exercise of
warrants.
(5) Includes 291,900 Shares that may be purchased upon exercise of warrants.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1997, the Company owed its President and CEO, Steven
Walker, $152,944. During 1998, Dr. Walker made working capital advances to the
Company of $33,369 and the Company issued 28,500 shares of its common stock to
him for the conversion of $57,000 of debt owed to him by the Company.
Separately, Dr. Walker forgave $14,813 of the Company's outstanding loan
balance due him, recognizing such forgiveness as a contribution of capital to
the Company. The remaining balance owed by the Company to Dr. Walker was
$175,000 as of December 31, 1998.
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The financial statements as set forth under Item 7 of this report on Form
10-KSB and the financial statement schedules are incorporated herein.
(b) REPORTS ON FORM 8-K
On November 17, 1998, the Registrant filed a Current Report on Form 8-K,
dated October 30, 1998 with the Securities and Exchange Commission to file the
Agreement and Plan of Merger between American General Ventures, Inc. and
Nucleus Holding Corp., dated October 30, 1998 (Item 5 of Form 8-K). On
November 20, 1998, the Registrant filed an amendment to such 8-K on Form 8-K/A
to revise the Plan of Merger.
F-12
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Nucleus, Inc.
We have audited the consolidated balance sheets of Nucleus, Inc. (formerly
American General Ventures, Inc.) as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders'
deficit, and cash flows for each of the years in the two year period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of Nucleus,
Inc. as of December 31, 1998 and 1997, and the results of its operations and
cash flows for each of the years in the two year period ended December 31,
1998, in conformity with generally accepted accounting principles.
James E. Scheifley & Associates,
P.C.
Certified Public Accountants
Englewood, Colorado
March 3, 1999
F-13
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
------ ------------------------
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash............................................... $ 1,126 $ 17,706
Accounts receivable, trade......................... 10,000 1,425
Inventory.......................................... 34,690 177,057
Prepaid expenses................................... -- 198
----------- -----------
Total current assets............................. 45,816 196,386
Property and equipment, at cost, net of accumulated
depreciation (1998--$38,106; 1997--$36,081)......... 21,195 37,602
Goodwill, net of accumulated amortization (1998--
$27,571; 1997--$25,183)............................. 20,195 22,583
----------- -----------
$ 87,206 $ 256,571
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.................. $ 3,310 $ 4,200
Due to shareholder................................. 175,000 115,215
Accounts payable................................... 169,135 289,846
Accrued interest--related party.................... -- 37,729
Accrued expenses, other............................ 19,258 6,854
----------- -----------
Total current liabilities........................ 366,703 453,844
Long-term debt....................................... 9,142 14,217
Commitments and contingencies (Note 9)
Stockholders' deficit:
Preferred stock, no stated value 8,000,000 shares
authorized, no shares issued and outstanding...... -- --
Common stock, $.001 par value, 900,000,000 shares
authorized, shares issued and
outstanding 1998--1,129,827; 1997--1,059,367...... 1,130 1,059
Additional paid-in capital......................... 2,779,527 2,440,323
Accumulated deficit................................ (3,069,296) (2,652,872)
----------- -----------
Total stockholders' deficit...................... (288,639) (211,490)
----------- -----------
$ 87,206 $ 256,571
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Sales................................................... $ 747,144 $ 721,745
Cost of sales........................................... 769,754 690,064
--------- ---------
Gross profit (deficit).................................. (22,610) 31,681
Other costs and expenses:
General and administrative............................ 455,857 429,212
--------- ---------
Loss from operations.................................... (478,467) (397,531)
Other income and (expense):
Other income.......................................... -- 117
Interest expense--related party....................... -- (12,000)
Interest expense...................................... (13,902) (21,507)
--------- ---------
(13,902) (33,390)
--------- ---------
Loss before income taxes and extraordinary item......... (492,369) (430,921)
Income tax benefit...................................... 25,820 --
--------- ---------
Loss before extraordinary item.......................... (466,549) (430,921)
Extraordinary item (net of tax benefit of $25,820)...... 50,125 --
--------- ---------
Net loss............................................ $(416,424) $(430,921)
========= =========
Basic and diluted loss per share:
Net loss before extraordinary item.................... $ (0.43) $ (0.45)
Extraordinary item.................................... 0.05 --
--------- ---------
Net loss............................................ $ (0.38) $ (0.45)
========= =========
Weighted average shares outstanding..................... 1,106,056 950,622
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
---------------- Additional
Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996. 920,000 $ 920 $1,710,379 $(2,221,951) $(510,652)
Common stock sold for cash. 56,667 57 150,776 -- 150,833
Common stock issued for
services.................. 27,700 28 54,222 -- 54,250
Common stock issued for
debt conversion........... 55,000 54 524,946 -- 525,000
Net loss for the year...... -- -- -- (430,921) (430,921)
--------- ------ ---------- ----------- ---------
Balance, December 31, 1997. 1,059,367 1,059 2,440,323 (2,652,872) (211,490)
--------- ------ ---------- ----------- ---------
Common stock sold for cash. 40,750 41 74,459 -- 74,500
Common stock issued for
services.................. 1,210 1 3,261 -- 3,262
Common stock issued for
debt conversion........... 28,500 29 56,971 -- 57,000
Capital contribution by
office/shareholder........ -- -- 14,813 -- 14,813
Compensation value of
common stock warrants..... -- -- 141,000 -- 141,000
Compensation value of
common stock sales........ -- -- 43,000 -- 43,000
Compensation value of
common stock issued for
debt conversion........... -- -- 5,700 -- 5,700
Net loss for the year...... -- -- -- (416,424) (416,424)
--------- ------ ---------- ----------- ---------
Balance, December 31, 1998. 1,129,827 $1,130 $2,779,527 $(3,069,296) $(288,639)
========= ====== ========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net loss................................................. $(416,424) $(430,921)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 11,168 16,134
Compensation expenses related to equity issuances.... 189,700 --
Salary added to officer loan......................... 60,500 60,000
Gain on extinguishment of debt....................... (75,945) --
Fixed assets exchanged for services.................. 8,527 --
Stock issued for services............................ 3,262 54,250
Changes in assets and liabilities:
(Increase) decrease in accounts receivable......... (8,575) 18,126
(Increase) decrease in inventory................... 142,367 (9,070)
Decrease in prepaid expenses....................... 198 1,802
Increase (decrease) in accounts payable and accrued
expenses.......................................... (32,362) 40,078
--------- ---------
Total adjustments.................................. 298,840 181,320
--------- ---------
Net cash used in operating activities................ (117,584) (249,601)
--------- ---------
Cash flows from investing activities:
Acquisition of equipment............................... (900) --
--------- ---------
Net cash used in investing activities.................... (900) --
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt............................ (5,965) (8,084)
Proceeds from the sale of common stock................. 74,500 150,833
Increase in officer loans.............................. 33,369 100,574
--------- ---------
Net cash provided by financing activities............ 101,904 243,323
--------- ---------
Decrease in cash......................................... (16,580) (6,278)
Cash and cash equivalents, beginning of period........... 17,706 23,984
--------- ---------
Cash and cash equivalents, end of period................. $ 1,126 $ 17,706
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest...................................... $13,902 $ 21,506
Non-cash investing and financing activities:
Asset liquidated to satisfy note payable.................... $ -- $ 18,741
Conversion of debt to common stock.......................... $57,000 $525,000
Forgiveness of officer loan................................. $14,813 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 1. Organization and Summary of Significant Accounting Policies.
Nucleus, Inc., formerly known as American General Ventures, Inc. (the
"Company") was incorporated in Nevada in November, 1984. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiary, ACI Micro Systems, Inc. ("ACI"), a reseller of computers and
related products that are manufactured by third parties, which was acquired on
September 11, 1987. All significant inter-company items have been eliminated
in consolidation. The Company distributes its products through a retail outlet
in Colorado Springs, CO and through an online shopping web site.
On December 8, 1998 the Company changed its name to Nucleus, Inc. and
effected a one share for ten shares reverse stock split. All share and per
share data included in the foregoing financial statements and accompanying
notes thereto have been restated to give effect to the reverse stock split.
Inventory
Inventory is valued at the lower of cost or market on a first-in first-out
basis and consists primarily of finished goods including complete computer
systems, spare parts and related equipment held for retail sale.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated
based upon estimated useful lives using the straight-line method. Estimated
useful lives range from 3 to 5 years for furniture and fixtures and from 5 to
10 years for equipment.
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Office furniture and equipment.......................... $36,529 $50,908
Vehicles................................................ 22,775 22,775
------- -------
Total................................................. 59,304 73,683
Less accumulated depreciation........................... (38,109) (36,081)
------- -------
$21,195 $37,602
======= =======
</TABLE>
Depreciation charged to operations was $8,780 and $13,746 for the years
ended December 31, 1998, and 1997, respectively. Vehicles are pledged as
collateral for the underlying purchase financing contracts, see Note 7. During
the year ended December 31, 1998, the Company exchanged certain equipment for
services rendered by an unrelated individual. The net book value of the assets
exchanged amounted to $8,527 and has been recorded as general and
administrative expense.
Goodwill
Amortization of goodwill amounted to $2,388 for each of the years ended
December 31, 1998, and 1997, and was computed using the straight line method
over a twenty year period. Goodwill recorded by the Company represents the
excess of the purchase of ACI over the net assets acquired.
The Company makes reviews for the impairment of long-lived assets and
certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Under
SFAS No. 121, an impairment loss would be recognized when estimated future
cash flows
F-19
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expected to result from the use of the asset and its eventual disposition is
less than its carrying amount. No such impairment losses have been identified
by the Company for the 1998 and 1997 fiscal years.
Loss per Share
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods
ending after December 15, 1997. Among other changes, SFAS No. 128 eliminates
the presentation of primary earnings per share and replaces it with basic
earnings per share for which common stock equivalents are not considered in
the computation. It also revises the computation of diluted earnings per
share. The Company has adopted SFAS No. 128 and there is no material impact to
the Company's earnings per share, financial condition, or results of
operations. The Company's earnings per share have been restated for all
periods presented to be consistent with SFAS No. 128. Per share amounts are
based on the weighted average number of common shares outstanding. Common
stock equivalents are not considered in years when operating losses are
incurred as their effect would be anti-dilutive. Anti-dilutive options and
warrants not included in the calculation totaled 367,050 and 40,000 in 1998
and 1997, respectfully.
The basic loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding for the
period. Loss per share is unchanged on a diluted basis since the assumed
exercise of common stock equivalents would have an anti-dilutive effect.
Revenue Recognition
Revenue is recognized at the time the product is delivered or the service
is performed. Provision for sales returns are estimated based on the Company's
historical return experience.
Estimates
The preparation of the Company's financial statements requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
these estimates. The most significant estimates relate to (i) sales returns
and allowances and (ii) inventory valuation.
Advertising costs
Advertising costs are charged to operations when the advertising first
takes place. Advertising costs charged to operations were $3,807 and $3,720 in
1998 and 1997, respectively.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash, accounts
and loans receivable, and payables and accruals. The carrying amounts of these
financial instruments approximates fair value because of their short-term
maturities. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash and accounts
receivable, trade. During the year the Company did not maintain cash deposits
at financial institutions in excess of the $100,000 limit covered by the
Federal Deposit Insurance Corporation. The Company had a major customer in
1998, see Notes 2 and 3, the loss of which has had an adverse effect upon the
Company. The Company does not hold or issue financial instruments for trading
purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments.
F-20
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123
(SFAS 123), "Accounting for Stock-Based Compensation", beginning with the
Company's first quarter of 1996. Upon adoption of SFAS 123, the Company
continued to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB No. 25,
Accounting for Stock Issued to Employees. Stock-based compensation was paid by
the Company during the year ended December 31, 1998 and 1997, as described in
Note 4.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for
all items that are to be recognized under accounting standards as components
of comprehensive income to be reported in the financial statements. The
statement is effective for all periods beginning after December 15, 1997 and
reclassification financial statements for earlier periods will be required for
comparative purposes. To date, the Company has not engaged in transactions
which would result in any significant difference between its reported net loss
and comprehensive net loss as defined in the statement.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1
provides authoritative guidance on when internal-use software costs should be
capitalized and when these costs should be expensed as incurred. The adoption
of SOP 98-1 had no impact on the Company. Effective January 1, 1998, the
Company adopted SOP 98-1.
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position, as the Company operates in only
one business segment.
Effective December 31, 1998, the Company adopted the provisions of SFAS No.
132, Employers' Disclosures about Pensions and Other Post-retirement Benefits
("SFAS 132"). SFAS 132 supersedes the disclosure requirements in SFAS No. 87,
Employers' Accounting for Pensions, and SFAS No. 106, Employers' Accounting
for Post-retirement Benefits Other Than Pensions. The overall objective of
SFAS 132 is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The adoption of SFAS 132 had no impact on the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which is required to be adopted in years beginning after June 15, 1999. SFAS
133 will require the Company to recognize all derivatives on the balance sheet
at fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The adoption
of SFAS 133 had no impact on the Company.
F-21
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 2. Company Operations
The Company sells computers and accessories which are manufactured by third
parties. The Company has had two vendor agreements with Wal-Mart. The first
agreement (entered into in August, 1995) was a resale agreement for Wal-Mart
to sell ACI computers in their retail stores. The first agreement was
terminated by mutual consent in April, 1997. The second agreement (entered
into in June, 1997) permitted ACI to sell its computers from Wal-Mart's
website, Wal-Mart Online. The second agreement was terminated on October 30,
1998 by mutual consent of both parties as Wal-Mart was concerned over the
quality of ACI's products and its customer service and because ACI suspected
violations of customer return policies. As of this date a new agreement has
not been consummated.
The discontinuance of the Wal-Mart agreement, and loss of the associated
revenue, has and will continue to have a severe adverse effect on the
Company's results of operation and liquidity and capital resources.
Subsequent to the termination of the Wal-Mart agreement, ACI has been
refocusing its efforts to generate sales from its own website and store--a
strategy which management believes will offset a portion of the revenue lost
from the termination of the Wal-Mart agreement. ACI has developed its own
website (www.availpc.com). ACI pays a fee to Hotmail, a free Internet email
service wholly-owned by Microsoft, to promote its computer systems. These
banner ads enable Hotmail customers to link to ACI's website to purchase
computer systems. Sales made by the Company during 1998 which can be
attributed to this service amounted to $296,468. The Company ceased its
relationship with this service during 1998 as a result of a change in
ownership of the service which resulted in a change in the nature of its
relationships with its advertisers.
The Company does not expect the revenue generated from its website sales or
store to fully replace the revenue lost from the Wal-Mart agreement.
Note 3. Concentration of credit risk
During the years ended December 31, 1998 and 1997, the Company recorded
revenue for goods or services provided to client companies that comprise
greater than 10% of total revenues as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Wal-Mart Stores, Inc.................................... $309,612 $422,041
</TABLE>
At December 31, 1998 the Company had a balance due from Wal-Mart Stores
amounting to $10,000 which was paid in full subsequent to that date. During
1998, the Company ceased its relationship with Wal-Mart Stores.
Note 4. Stockholders' Equity.
During the year ended December 31, 1998, the Company issued an aggregate of
40,750 shares of its common stock to third parties for cash aggregating
$74,500 in private sale transactions. The shares were sold at prices between
$2.00 per share and $1.50 per share when the Company's common stock had a bid
price higher than the sale price. The excess of the bid price over the sale
price for the shares issued amounted to $43,000 on an aggregate basis and has
been recorded as general and administrative expense.
The Company issued an aggregate of 1,210 shares of its common stock for
services provided to the Company by employees at various dates during 1998.
The bonus shares were valued at bid price for the
F-22
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's common stock at the date the shares were authorized by the Company's
Board of Directors. The aggregate value of the shares issued was $3,262 and
has been recorded as compensation expense for service provided to the Company
which was substantially complete as of the authorization dates.
During the year ended December 31, 1998 the Company issued 28,500 shares of
its common stock for the conversion of $57,000 of debt owed to its
president/shareholder. The shares were valued at $2.00 per share at the
conversion date at which time the Company's common stock had a bid price of
$2.20 per share. The excess of the bid price over the conversion price for the
shares issued ($5,700) has been recorded as compensation expense.
At December 31, 1998 the Company's president/shareholder agreed to reduce
the amount of loans due to him by $14,813. This amount has been recorded as a
capital contribution to the Company.
At various dates during the year ended December 31, 1998 the Company issued
warrants to purchase an aggregate of 327,050 shares of the Company's common
stock to employees and others in recognition of services performed at exercise
prices ranging from $5.00 per share to $1.60 per share. An aggregate
difference of $141,000 between the exercise price and the fair value of the
stock signifying the completion of the services as approved by the Company's
Board of Directors was charged to compensation expense.
The Company issued an aggregate of 27,700 shares of its common stock for
services provided to the Company by three entities. The shares were valued at
$1.00 per share for 10,000 shares issued in January 1997 and $2.50 per share
for 17,700 shares issued in September 1997 based on the bid prices of the
Company's common stock on these dates and have been recorded as general and
administrative expenses.
The Company issued 100,000 warrants during 1997 to purchase the Company's
common stock in connection with an agreement for a vendor to provide website
development and public relations services to the Company. The exercise price
for these warrants was determined based on the Company's bid price of $2.50 on
the day the warrants were issued. Fifty thousand of the warrants had an
exercise price of $2.50 per share and the exercise price of the remaining
50,000 warrants was $3.875 per share. The Company received $150,833 in cash
during 1997 related to the exercise of 56,667 of the warrants by the vendor.
The remaining warrants issued to the vendor expired on December 31, 1997.
During the year ended December 31, 1997 the Company issued 50,000 shares of
its common stock for the conversion of debt owed to its president/shareholder.
The shares were valued at $10.00 per share when the Company's common stock had
a bid price of $5.00 per share at the date the conversion was approved by the
Company's Board of Directors. The excess of the conversion price over the bid
price for the shares issued (totaling $500,000) has been recorded as a capital
contribution to the Company by its president/shareholder. Additionally, 5,000
shares of restricted common stock were issued to a vendor for debt conversion
at $5.00 per share (totaling $25,000), the fair value of the stock on the
conversion date.
During the year ended December 31, 1997 the Company established a non-
qualified stock option plan to benefit employees, officers, directors,
consultants and others providing services to the Company. The Company has
reserved 2,500,000 shares of common stock for issuance in connection with
option grants made pursuant to the plan. The purchase price for shares granted
under the plan shall not be less than 67% of the fair market value of the
stock on the grant date. The shares and warrant shares described in the
preceding paragraphs were issued in connection with the stock option plan.
F-23
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrant activity of the Company for the years ended December 31, 1998 and
1997, was as follows:
<TABLE>
<CAPTION>
Price Weighted Average
Shares Range Exercise Price
------- ---------- ----------------
<S> <C> <C> <C>
Outstanding as of January 1, 1997... 40,000 $5.00 $ 5.00
Granted........................... 100,000 2.50-3.875 2.66
Exercised......................... (56,667) 2.50-3.875 2.66
Expired........................... (43,333) 3.875 3.875
-------
Outstanding and exercisable as of
December 31, 1997.................. 40,000 5.00 5.00
Granted........................... 327,050 1.60-5.00 3.10
-------
Outstanding and exercisable as of
December 31, 1998.................. 367,000 $1.60-5.00 $ 3.31
======= ========== ======
</TABLE>
The weighted average fair value at the date of grant for warrants granted
during 1998 as described above was $.36 per warrant (after recording the
additional compensation attributed to warrants as described above). The fair
value of the warrants at the date of grant was estimated using the Black-
Scholes model with assumptions as follows:
<TABLE>
<S> <C>
Market value................................................... $2.20-$3.40
Expected life in years......................................... 1-5
Interest rate.................................................. 6.6%
Volatility..................................................... 10%
Dividend yield................................................. 0.00%
</TABLE>
Stock based compensation costs would have increased pretax losses by
$125,500 ($.11 per share) in 1998, if the fair value of the warrants granted
during the year had been recognized as compensation expense. There would have
been no stock-based compensation cost in 1997.
Note 5. Income Taxes.
The Company has not provided for income taxes for the years ended December
31, 1998, and 1997, due to operating losses.
The Company has net operating loss carryforwards available to offset future
taxable income of approximately $3,051,000. Such carryforward amounts expire
in years beginning in 2002, as follows:
<TABLE>
<S> <C>
2002................................... $ 214,000
2003................................... $ 233,000
2004................................... $ 353,000
2005................................... $ 190,000
2007................................... $ 140,000
2008................................... $ 280,000
2009................................... $ 81,000
2011................................... $ 724,000
2012................................... $ 420,000
2013................................... $ 416,000
----------
Total.............................. $3,051,000
==========
</TABLE>
F-24
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company does not anticipate the utilization of these net operating
losses in the near future and has established a valuation allowance for the
full amount of deferred tax asset ($1,037,000) estimated to arise therefrom.
The reserve amount increased by approximately $141,000 and $143,000 during the
years ended December 31, 1998, and 1997.
Note 6. Related Party Transactions
The Company was obligated to compensate its president at the rate of
$63,000 per annum effective January, 1992. Additionally, the
president/shareholder has historically been entitled to a bonus in the amount
of 10% of any net profit of the Company. As of October 30, 1998, the
contingent bonus arrangement has been discontinued.
The balance due this officer/shareholder, who is also a director of the
Company, at December 31, 1996 amounted to $492,370 for prior accrued salary,
interest, cash advances and the assumption during 1996 of a bank loan in the
amount of $255,200. During the year ended December 31, 1997, the
officer/shareholder made working capital advances to the Company of $100,574.
The Company has accrued the officer's unpaid salary of $60,000 for the year
ended December 31, 1997. At December 31, 1997 $500,000 of the aggregate
balance due to the officer/shareholder was converted into common stock of the
Company as described in Note 4. The remaining balance due the
officer/shareholder for loans and accrued interest amounted to $152,944 at
December 31, 1997.
During the year ended December 31, 1998, the officer made working capital
advances to the Company of $33,369. The Company has accrued the officer's
unpaid salary of $60,500 for the year ended December 31, 1998. During May 1998
$57,000 of the aggregate balance due to the officer was converted into common
stock of the Company as described in Note 4 and as of December 31, 1998 the
officer forgave $14,813 of the loan balance. This reduction of the loan
balance was accounted for as a contribution of capital to the Company by the
officer/shareholder.
The remaining balance due the officer/shareholder for working capital
advances, accrued salary and accrued interest amounted to $175,000 at
December 31, 1998 and is unsecured and non-interest bearing. This amount is
expected to be repaid to the officer currently in connection with a planned
merger as described in Note 9.
Note 7. Long-term debt
During the year ended December 31, 1996, the Company entered into a vehicle
purchase contract which provides for a monthly repayment of $492 through the
year 2001. The contract bears interest at 8.5% per annum and is secured by
such vehicles. During 1997, the Company disposed of one of the vehicles and
retired the related debt. Aggregate amounts due under the remaining contract
are $3,310 in 1999, $5,330 in 2000 and $3,812 in 2001.
Note 8. Commitments and contingencies
Operating leases
The Company leases its facility under a non-cancellable operating lease
through May 31, 1999. The minimum future rental payable under the lease is
$7,875 for 1999. Rent expense amounted to $26,107 and $27,310 for the years
ended December 31, 1998 and 1997, respectively.
F-25
<PAGE>
NUCLEUS, INC.
(formerly known as American General Ventures, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
Legal Proceedings
The Company has disputes in the normal course of operations with a number
of its suppliers. Such matters typically relate to vendors requesting payment
on product delivered to the Company, which the Company believes is either
defective or product which had not been ordered from such vendor.
The Company was notified on December 31, 1998 of a collection action filed
against it by Pony Computer, Inc. in the amount of $117,000 for payment on
certain products shipped to ACI by Pony. Management believes that the case was
filed in the wrong jurisdiction and has filed a motion to dismiss. No ruling
on this motion is expected prior to May 1, 1999. Management believes the case
is without merit and expects to aggressively defend the action if its motion
for dismissal is denied.
During 1997, ACI was sued by a supplier, Cal IC, for $27,500, plus
attorneys fees and costs for payment on certain products shipped to ACI by Cal
IC. The Company's management believed that much of the product received from
Cal IC was either defective or the wrong products were shipped. Cal IC refused
to credit the Company's account or accept the return of product for a credit.
This matter was settled in 1998 at a mediation session for $22,000, $12,000
payable in cash, with the balance due in equal monthly installments over ten
months. The Company has an account payable for the outstanding portion of the
payments due in the amount of $6,000 and has recorded an extraordinary gain on
the settlement in the amount of $5,500 ($3,630 net of tax).
During 1997, the Company had a disputed payable balance with one of its
suppliers, Worldnet. Worldnet alleged that the Company owed them $102,445 for
payment on certain products shipped to the Company by Worldnet. The Company's
management believed that much of the product received from Worldnet was either
defective or the wrong products were shipped. Worldnet refused to credit the
Company's account or accept the return of product for a credit. This matter
was settled in 1998 from negotiation between the two parties for $32,000. The
Company has recorded an extraordinary gain related to the settlement of the
disputed payable in the amount of $70,445 ($46,495 net of tax).
During 1997, the Company had disputed payable balances with two additional
suppliers aggregating a total of $51,000. Management believes that such claims
will be successfully negotiated and will likely result in settlement at
reduced amounts.
Note 9. Planned merger transaction
On October 30, 1998 the Company entered into a merger agreement with
Nucleus Holdings, Inc. (Holdings) whereby all of the outstanding shares of
Holdings would be exchanged for 5,307,109 newly issued Company shares. The
merger is intended to qualify as a tax-free reorganization, as permitted by
the Code and pooling-of-interests for accounting and financial reporting
purposes. Completion of the transaction is subject to, among other things, the
approval of the Company's stockholders.
F-26
<PAGE>
NUCLEUS, INC.
(formerly known as AMERICAN GENERAL VENTURES, INC.)
Date: , 1999 By: /s/ Steven H. Walker
Steven H. Walker
President/CEO
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: , 1999 /s/ Steven H. Walker
Steven H. Walker, President Director
Date: , 1999 /s/ Christopher S. Walker
Christopher S. Walker, Secretary
Treasurer, Director
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Nucleus Holding Corporation:
We have audited the accompanying consolidated balance sheets of NUCLEUS
HOLDING CORPORATION (an Illinois corporation) AND SUBSIDIARIES as of December
31, 1998 and 1997, and the related consolidated statements of operations,
shareholder's deficit and cash flows for the year ended December 31, 1998 and
for the period from April 30, 1997 (inception), to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nucleus
Holding Corporation and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1998 and for the period from April 30, 1997 (inception), to
December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 19, 1999
F-28
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
ASSETS
------
<S> <C> <C>
Current assets:
Cash................................................... $ 24,091 $ --
Accounts receivable, net of allowance for doubtful
accounts of $11,900 and $74,300, respectively......... 161,312 230,775
Unbilled revenue, less reserves of $5,600 and $22,300,
respectively.......................................... 167,977 379,993
Due from shareholder................................... 115,383 --
Prepaid expenses and deposits.......................... 58,829 40,537
--------- ---------
Total current assets................................. 527,592 651,305
--------- ---------
Property and equipment:
Computer equipment..................................... 59,143 38,722
Computer software...................................... 2,000 2,000
Furniture & fixtures................................... 5,000 --
--------- ---------
66,143 40,722
Less--Accumulated depreciation and amortization.......... (20,023) (2,545)
--------- ---------
Property and equipment, net............................ 46,120 38,177
--------- ---------
Total assets......................................... $ 573,712 $ 689,482
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S DEFICIT
-------------------------------------
<S> <C> <C>
Current liabilities:
Book overdraft......................................... $ -- $ 14,887
Trade accounts payable................................. 596,234 236,036
Accrued telephone and billing expenses................. 161,288 382,099
Accrued commissions.................................... 63,503 44,131
Accrued expenses....................................... 79,007 57,191
Due to shareholder..................................... -- 249,356
--------- ---------
Total liabilities.................................... 900,032 983,700
--------- ---------
Commitments and Contingencies
Shareholder's deficit:
Common stock, no par value, 1,000 shares authorized,
issued and outstanding................................ 3,000 3,000
Accumulated deficit.................................... (329,320) (297,218)
--------- ---------
Total shareholder's deficit.......................... (326,320) (294,218)
--------- ---------
Total liabilities and shareholder's deficit.......... $ 573,712 $ 689,482
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-29
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year ended December 31, 1998 and for the Period from April 30, 1997
(Inception), to December 31, 1997
<TABLE>
<CAPTION>
Period from
April 30, 1997
Year ended (inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Revenues................................... $2,827,428 $ 956,810
---------- ----------
Expenses:
Cost of service............................ 1,747,403 615,229
Selling and marketing...................... 367,579 86,000
Research and development................... 40,883 248,690
General and administrative................. 738,673 304,109
---------- ----------
Total operating expenses................. 2,894,538 1,254,028
---------- ----------
Loss from operations....................... (67,110) (297,218)
Other income............................... 35,008 --
---------- ----------
Loss before provision for income taxes... (32,102) (297,218)
Provision for income taxes................. -- --
---------- ----------
Net loss................................... $ (32,102) $ (297,218)
========== ==========
Basic and diluted net loss per share....... $ (32.10) $ (297.22)
========== ==========
Basic and diluted weighted average common
shares outstanding........................ 1,000 1,000
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-30
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
For the Year Ended December 31, 1998 and for the Period from
April 30, 1997 (Inception), to December 31, 1997
<TABLE>
<CAPTION>
Common Stock,
No Par Value,
1,000 Shares
Authorized
------------- Accumulated
Shares Amount Deficit Total
------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Balance, April 30, 1997 -- $ -- $ -- $ --
Issuance of common stock, December 1997. 1,000 1,000 -- 1,000
Shareholder contribution................ -- 2,000 -- 2,000
Net loss for the period................. -- -- (297,218) (297,218)
----- ------ --------- ---------
Balance, December 31, 1997................ 1,000 $3,000 $(297,218) $(294,218)
Net loss for the period................. -- -- (32,102) (32,102)
----- ------ --------- ---------
Balance, December 31, 1998................ 1,000 $3,000 $(329,320) $(326,320)
===== ====== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-31
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1998 and for the Period
from April 30, 1997 (Inception), to December 31, 1997
<TABLE>
<CAPTION>
Period from
April 30, 1997
Year Ended (inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................. $ (32,102) $(297,218)
Adjustments to reconcile net loss to net
cash used for operating activities--
Depreciation........................... 17,478 2,545
Changes in operating assets and
liabilities--
Accounts receivable, net of acquired
receivables......................... 101,463 (230,775)
Unbilled revenue..................... 212,016 (379,993)
Prepaid expenses and deposits........ (18,292) (40,537)
Accounts payable..................... 360,198 236,036
Accrued telephone and billing
expenses............................ (220,811) 382,099
Accrued commissions.................. 19,372 44,131
Accrued expenses..................... 21,816 57,191
--------- ---------
Net cash from (used for) operating
activities........................ 461,138 (226,521)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment...... (25,421) (40,722)
Purchase of receivables.................. (32,000) --
--------- ---------
Cash used for investing activities. (57,421) (40,722)
--------- ---------
Cash flows from financing activities:
Stock issuance........................... -- 1,000
Shareholder contribution................. -- 2,000
Borrowings from shareholder.............. -- 249,356
Repayments and advances to shareholder... (364,739) --
Book overdraft........................... (14,887) 14,887
--------- ---------
Net cash provided by financing
activities........................ (379,626) 267,243
--------- ---------
Net change in cash......................... 24,091 --
Cash, beginning of period.................. -- --
--------- ---------
Cash, end of period........................ $ 24,091 $ --
========= =========
Cash paid during the period for:
Income taxes............................. $ -- $ --
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-32
<PAGE>
NUCLEUS HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1998 and 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nucleus Holding Corporation and Subsidiaries (the "Company") was
incorporated in Illinois on December 22, 1997, and has two wholly owned
subsidiaries; Alliance Net, Inc. ("Alliance") and Nucleus Data Source ("NDS").
Alliance, which began operations in August 1997, is a reseller of long-
distance telecommunications services with customers primarily located in
Chicago, Illinois. Alliance relies upon a third-party vendor to provide the
long distance telephone service and a separate third-party vendor to provide
billing and cash collection services (Note 4). NDS, which was incorporated on
April 30, 1997, is a PC retailer that performs computer repair, installation
of hardware and software and upgrade and maintenance services; and a software
development company that specializes in the development of Internet-based
software products with a focus on electronic commerce and bill presentment.
NDS conducts its PC retail business based on an agreement entered into with a
third party. The Company and the third party furnish technical and repair
personnel, services, facilities and equipment. NDS is required to provide all
marketing and customer service personnel, advertising, parts, procurement and
delivery of customer computer systems. Under the terms of the agreement, NDS
and the third party have agreed to share revenues equally. The software
development business is still in the development stage and has not generated
any revenues.
Prior to becoming subsidiaries of the Company, Alliance and NDS were owned
directly by the sole shareholder of the Company. On December 22, 1997, in
connection with the formation of the Company, the sole shareholder of Alliance
and NDS contributed his stock ownership in the companies to the Company. Since
all of the companies are controlled by the same shareholder, the transaction
has been accounted for in a manner similar to a pooling of interests and,
therefore, the results of operations presented are for the year ended
December 31, 1998 and the period from April 30, 1997, through December 31,
1997.
The consolidated financial statements include the accounts of the Company,
Alliance and NDS. All significant intercompany balances and transactions have
been eliminated.
2. COMPANY OPERATIONS
The Company's primary business through December 31, 1998 has been the
reselling of long-distance telecommunications through Alliance which began in
August 1997. Alliance generated operating income of approximately $220,000 in
1998 and an operating loss of approximately $4,500 in 1997. The Company has
used cash flow generated from Alliance's operations to fund its Internet and
computer related business investments which are operated through NDS. The
shareholder of the Company has also provided working capital advances to
support the Company's operations. At December 31, 1998 and 1997, the Company
has a shareholder's deficit of $326,320 and $294,218, respectively, primarily
as a result of start-up losses and investments associated with NDS. Such
investments have been discretionary, and, if needed, could be reduced to
provide liquidity to the Company.
Nucleus has temporarily discontinued funding the development of CheckBook
and the Business Browser to focus on its core operations with respect to
reselling telecommunication services and providing computer installation and
integration services. Nucleus' shareholder does not currently intend to fund
these research and development activities. Additionally, the Combined Company
currently expects that any future funding of such activities would need to be
provided by cash from operations. Neither CheckBook nor Business Browser has
reached technological feasibility and the Combined Company currently believes
additional investment would need to be made for such products to reach a
technologically feasible state. Since the development of these products has
been temporarily discontinued the Combined Company does not anticipate such
products to become technologically feasible in the foreseeable future.
The Company is anticipating raising additional equity or debt financing to
grow its existing businesses and also to fund future acquisitions in the
computer and telecommunications industries. A part of its growth strategy
F-33
<PAGE>
is to complete the merger described in Note 10. The Company's shareholder has
committed to provide additional financing for its operations, including paying
the Company's expenses related to the merger transaction in Note 10.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue from the resale of long-distance telecommunication services is
recognized as services are provided to customers. Revenue from the PC retail
business is recognized as products are delivered to the customer or as
services are provided to the customers.
Research and Development
The Company incurred approximately $41,000 and $249,000 in costs related to
software research and development in 1998 and 1997, respectively. These costs
have been expensed as incurred.
Unbilled Revenue
Long-distance telecommunication services provided to customers but not
billed at December 31, 1998 and 1997, are reflected as a current asset.
Property and Equipment
Computer equipment, computer software, and furniture and fixtures are
stated at cost and are depreciated using the straight-line method over
estimated useful lives of three years.
Loss Per Common Share
Basic and diluted loss per common share is computed by dividing net loss by
weighted average common shares outstanding for the year. The Company had no
outstanding dilutive or convertible securities.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. SERVICE AGREEMENT
On August 21, 1997, the Company entered into a three-year service agreement
with Connect America, Inc. ("CAI"). Under the agreement, CAI provides Alliance
with long distance telecommunications, billing, consulting and other services,
which Alliance resells to its customers. The agreement provides for CAI to
receive a fee for the cost of each long distance call equal to the per minute
usage rate plus 7%, and a fee for billing services equal to 3% of the monthly
billed revenue. In addition, CAI provides certain cash management functions
for the Company. At December 31, 1998 and 1997, the Company owed CAI
approximately $425,025 and $385,000, respectively, related to the services
described above.
5. LEASE COMMITMENT
The Company leases office space under a non-cancellable operating lease
which expires in December 1999. Rent expense for 1998 and 1997 was $100,000
and $32,000, respectively. All future obligations under this noncancelable
operating lease totaling $69,642 are payable in 1999.
F-34
<PAGE>
6. RELATED-PARTY TRANSACTION
During 1997, the Company's shareholder advanced funds totaling $249,356 to
the Company. During 1998, the Company repaid the entire shareholder loan and
also advanced the shareholder an additional $115,383. Advances to and
borrowing from the shareholder are unsecured and noninterest bearing. As of
February 19, 1999, the shareholder had repaid approximately $60,000 of this
amount.
7. SEGMENT INFORMATION
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information", which establishes
new standards for reporting information about operating segments in interim
and annual financial statements. The Company has adopted this new
pronouncement in 1998.
The Company operates in two segments: the reselling of long-distance
telecommunications (Alliance) and the developing of Internet-based software
and providing computer services, including computer repair, installation of
hardware and software, upgrade and maintenance service (NDS). Summarized
financial information is shown in the following table:
<TABLE>
<CAPTION>
For the period from April 30, 1997
For year ended December 31, 1998 (inception) to December 31, 1997
--------------------------------------------- ------------------------------------
Alliance NDS Eliminations Total Alliance NDS Total
---------- --------- ------------ ---------- ----------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $2,629,180 $ 198,248 -- $2,827,428 $ 956,810 $ -- $ 956,810
Operating income (loss). 222,169 (289,279) -- (67,110) (4,461) (292,757) (297,218)
Identifiable assets..... 663,840 142,395 (232,523) 573,712 638,127 51,355 689,482
Depreciation expense.... 5,621 11,856 -- 17,477 800 1,745 2,545
Capital expenditures.... -- 25,421 -- 25,421 12,800 27,922 40,722
</TABLE>
8. ASSET PURCHASE
The Company's shareholder previously owned a minority interest in American
Teletronics Long Distance, Inc. (ATLD) and a majority interest in MetroLink
Communications (MetroLink). In both instances the Company's shareholder
relinquished ownership in these entities for no consideration prior to each
company ceasing operations in August 1997. On April 13, 1998, Alliance
purchased certain assets from a secured creditor (Manatee Partners Limited
Partnership) of ATLD and MetroLink for $32,000 at a public auction. Such
assets consisted of inventory, office furniture and equipment, and one half of
the cash collected from any accounts receivable. The entire purchase price was
allocated to accounts receivable.
9. INCOME TAXES
The Company provides for income taxes under the asset and liability method
of accounting. This method requires the recognition of deferred income taxes
based upon the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities. As of December 31, 1998, the Company has generated tax net
operating losses totalling approximately $330,000 and has provided a valuation
allowance for the entire benefit because it has generated losses since its
inception.
10. MERGER TRANSACTION
On October 30, 1998, the Company entered into a merger agreement with
American General Ventures, Inc. ("AGV") whereby all of the outstanding shares
of the Company would be exchanged for 5,307,109 newly issued AGV shares. The
merger is intended to qualify as a tax-free reorganization as permitted by the
Code and pooling-of-interests for accounting and financial reporting purposes.
Completion of the transaction is subject to, among other things, the approval
of AGV's shareholders.
F-35
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
AMERICAN GENERAL VENTURES, INC.
AND
NUCLEUS HOLDING CORP.
October 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S>
1. Definitions
2. Basic Transaction
(a) The Merger
(b) The Closing
(c) Actions at the Closing
(d) Effect of Merger
(e) Procedure for Payment
(f) Closing of Transfer Records
3. Representations and Warranties of the Target
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Authorization of Transaction
(d) Noncontravention
(e) Financial Statements
(f) Events Subsequent to Most Recent Fiscal Quarter End
(g) Undisclosed Liabilities
(h) Brokers' Fees
(i) Continuity of Business Enterprise
4. Representations and Warranties of the Buyer
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Authorization of Transaction
(d) Noncontravention
(e) Filings with the SEC
(f) Financial Statements
(g) Events Subsequent to Most Recent Fiscal Quarter End
(h) Undisclosed Liabilities
(i) Employment Agreements
(j) Brokers' Fees
(k) Continuity of Business Enterprise
(l) Disclosure
5. Covenants
(a) General
(b) Notices and Consents
(c) Regulatory Matters and Approvals
(d) [Intentionally Omitted]
(e) Operation of Target Business
(f) Operation of Buyer Business
(g) Full Buyer Access
(h) Full Target Access
(i) Notice of Developments
(j) Target Exclusivity
(k) Buyer Exclusivity
(l) Insurance and Indemnification
(m) Compliance with the Securities Act
(n) Report on Form 8-K
(o) Continuity of Business Enterprise
6. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Target
</TABLE>
<PAGE>
<TABLE>
<C> <S>
7. Termination
(a) Termination of Agreement
(b) Effect of Termination
8. Miscellaneous
(a) Survival
(b) Press Releases and Public Announcements
(c) No Third Party Beneficiaries
(d) Entire Agreement
(e) Succession and Assignment
(f) Counterparts
(g) Headings
(h) Notices
(i) Governing Law
(j) Amendments and Waivers
(k) Severability
(l) Expenses
(m) Construction
(n) Incorporation of Exhibits and Schedules
</TABLE>
<PAGE>
ITEM 5. Other Events
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of October 30, 1998, by and between American
General Ventures, Inc., a Nevada corporation (the "Buyer"), and Nucleus Holding
Corporation, an Illinois corporation (the "Target"). The Buyer and the Target
are referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Buyer in a reorganization pursuant to Code ss.368(a)(1)(A). The Target
Stockholder will receive capital stock in the Buyer in exchange for their
capital stock in the Target.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer owns beneficially.
"Buyer Common Share" means any share of the Common Stock, $.001 par value
per share, of the Buyer.
"Buyer Preferred Share" means any share of Preferred Stock of the Buyer.
"Buyer Warrant" means any warrant to purchase a Buyer-owned Share.
"Closing" has the meaning set forth in ss.2(b) below.
"Closing Date" has the meaning set forth in ss.2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in ss.2(d)(v) below.
"Definitive Buyer Proxy Materials" means the definitive proxy materials
relating to the Special Buyer Meeting.
"Disclosure Schedule" has the meaning set forth in ss.3 below.
"Dissenting Share" means any Target Share which any stockholder who or which
has exercised his or its appraisal rights under the Illinois General
Corporation Law holds of record.
"Effective Time" has the meaning set forth in ss.2(d)(i) below.
"Exchange Agent" has the meaning set forth in ss.2(e) below.
"Financial Statements" has the meaning set forth in ss.3(e) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
<PAGE>
"Illinois Certificate of Merger" has the meaning set forth in ss.2(c)
below.
"Illinois General Corporation Law" means the Business Corporation Act of
1983 of the State of Illinois, as amended.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge without independent investigation.
"Merger" has the meaning set forth in ss.2(a) below.
"Most Recent Fiscal Quarter End" has the meaning set forth in ss.4(f)
below.
"Nevada Certificate of Merger" has the meaning set forth in ss.2(c) below.
"Nevada General Corporation Law" means the General Corporation Law of the
State of Nevada as amended.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or
political subdivision thereof).
"Public Report" has the meaning set forth in ss.4(e) below.
"Requisite Buyer Stockholder Approval" means the affirmative vote of the
holders of a majority of the Buyer Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Special Buyer Meeting" has the meaning set forth in ss.5(c)(ii) below.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
2
<PAGE>
"Surviving Corporation" has the meaning set forth in ss.2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Share" means any share of the Common Stock, no par value per share,
of the Target.
"Target Stockholder" means any Person who or which holds any Target Shares.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "Merger") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"Surviving Corporation"). Immediately following the Merger, the Buyer shall
change its name to Nucleus Holding Corporation.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Target's general
counsel in Chicago, Illinois commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will
take at the Closing itself) or such other date as the Parties may mutually
determine (the "Closing Date"); provided, however, that the Closing Date shall
be no later than December 31, 1998.
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Buyer the various certificates, instruments, and documents referred to in
ss.6(a) below, (ii) the Buyer will deliver to the Target the various
certificates, instruments, and documents referred to in ss.6(b) below, (iii)
the Buyer and the Target will file with the Secretary of State of the State of
Nevada a Certificate of Merger in a form customarily accepted by the Secretary
of State of the State of Nevada (the "Nevada Certificate of Merger"), (iv) the
Buyer and the Target will file with the Secretary of State of the State of
Illinois a Certificate of Merger in a form customarily accepted by the
Secretary of State of the State of Illinois (the "Illinois Certificate of
Merger"), and (v) the Buyer will deliver to the Exchange Agent in the manner
provided below in this ss.2 the certificate evidencing the Buyer Shares issued
in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target file the Certificate of Merger
and Articles of Merger with the Secretary of State of the State of Illinois
and the Secretary of State of the State of Nevada or such later time as
specified in the Certificate of Merger and Articles of Merger. The Merger
shall have the effect set forth in the Nevada General Corporation Law and
the Illinois General Corporation Law. The Surviving Corporation may, at any
time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Buyer or
the Target in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate of Incorporation of
the Buyer in effect at and as of the Effective Time will remain the
Certificate of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) Bylaws. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) Directors and Officers.
(a) prior to the Effective Time, AGV will amend its Bylaws to provide
for up to ten directors;
(b) prior to the Effective Time, AGV shall use its best efforts to
cause Christopher S. Walker to resign as a director;
3
<PAGE>
(c) AGV shall use its best efforts to cause John Paulsen and up to
three persons designated by Mr. Paulsen mutually acceptable to AGV and
Nucleus to be duly appointed or elected to the Board of Directors of
AGV, effective at the Effective Time or as soon as practicable
thereafter. AGV and Nucleus hereby agree that, Mark Fera and Stephen
Calk are acceptable to serve as directors of AGV.
(d) AGV and Nucleus shall use their reasonable best efforts to cause
John C. Paulsen to be appointed President and Chief Executive Officer
and Steven H. Walker to remain a Chairman of the Board of Directors and
to be appointed as Vice President of Business Development of AGV
effective at the Effective Time or as soon as practicable thereafter.
(v) Conversion of Target Shares. At and as of the Effective Time, (A)
each Target Share (other than any Dissenting Share or Buyer-owned Share)
shall be converted into the right to receive 54,428,999 Buyer Shares (the
ratio of 54,428.999 Buyer Shares to one Target Share is referred to herein
as the "Conversion Ratio"), (B) each Dissenting Share shall be converted
into the right to receive payment from the Surviving Corporation with
respect thereto in accordance with the provisions of the Illinois General
Corporation Law, and (C) each Buyer-owned Share shall be canceled;
provided, however, that the Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split, or other change in the number of Target Shares outstanding. No
Target Share shall be deemed to be outstanding or to have any rights other
than those set forth above in this ss.2(d)(v) after the Effective Time.
(vi) Buyer Shares. Each Buyer Share issued and outstanding at and as of
the Effective Time shall remain issued and outstanding.
(vii) Buyer Warrants. Each Buyer Warrant outstanding at and as of the
Effective Time shall remain outstanding and in full force and effect.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the Buyer will furnish to
Illinois Stock Transfer Company of Chicago, Illinois (the "Exchange Agent")
a stock certificate (issued in the name of the Exchange Agent or its
nominee) representing that number of Buyer Shares equal to the product of
(I) the Conversion Ratio times (II) the number of outstanding Target Shares
(other than any Dissenting Shares and Buyer-owned Shares) and (B) the Buyer
shall cause the Exchange Agent to mail a letter of transmittal (with
instructions for its use) to each record holder of outstanding Target
Shares for the holder to use in surrendering the certificates which
represented his or its Target Shares in exchange for a certificate
representing the number of Buyer Shares to which he or it is entitled.
(ii) The Buyer shall not pay any dividend or make any distribution on
Buyer Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Target Shares until the holder surrenders for
exchange his or its certificates which represented Target Shares. The Buyer
instead shall pay the dividend or make the distribution to the Exchange
Agent in trust for the benefit of the holder pending surrender and
exchange. The Buyer may cause the Exchange Agent to invest any cash the
Exchange Agent receives from the Buyer as a dividend or distribution in one
or more of the investments permitted of banks and transfer companies;
provided, however, that the terms and conditions of the investments shall
be such as to permit the Exchange Agent to make prompt payments of cash to
the holders of outstanding Target Shares as necessary. The Buyer may cause
the Exchange Agent to pay over to the Buyer any net earnings with respect
to the investments, and the Buyer shall replace promptly any cash which the
Exchange Agent loses through investments. In no event, however, will any
holder of outstanding Target Shares be entitled to any interest or earnings
on the dividend or distribution pending receipt.
(iii) The Buyer may cause the Exchange Agent to return any Buyer Shares
and dividends and distributions thereon remaining unclaimed 180 days after
the Effective Time, and thereafter each remaining record holder of
outstanding Target Shares shall be entitled to look to the Buyer (subject
to abandoned property, escheat, and other similar laws) as a general
creditor thereof with respect to the Buyer Shares and dividends and
distributions thereon to which he or it is entitled upon surrender of his
or its certificates.
(iv) The Buyer shall pay all charges and expenses of the Exchange Agent.
4
<PAGE>
(f) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of Target Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of the
Surviving Corporation.
3. Representations and Warranties of the Target. The Target represents and
warrants to the Buyer that the statements contained in this ss.3 are correct
and complete as of the date of this Agreement and shall be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this ss.3),
except as set forth in the disclosure schedule accompanying this Agreement and
initialed by the Parties (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this ss.3.
(a) Organization, Qualification, and Corporate Power. Each of the Target
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Target and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification
is required except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Each of the Target and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 1,000 Target Shares, all of which Target Shares are issued and
outstanding. All of the issued and outstanding Target Shares have been duly
authorized and are validly issued, fully paid, and nonassessable. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Target to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
with respect to the Target.
(c) Authorization of Transaction. The Target has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Target, enforceable in
accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries
is subject or any provision of the charter or bylaws of any of the Target and
its Subsidiaries or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of the Target and its Subsidiaries is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets) except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
material adverse effect on the financial condition of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Other than in connection with
the provisions of the Illinois General Corporation Law, the Nevada General
Corporation Law, the Securities Exchange Act, the Securities Act, and the
state securities laws, none of the Target and its Subsidiaries needs to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, to file, or to obtain any authorization, consent, or
approval would not have a material adverse effect on the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement.
5
<PAGE>
(e) Financial Statements. The Financial Statements of the Target for the
fiscal quarter ended June 30, 1998, and for the fiscal year ended December 31,
1997, (collectively, the "Financial Statement") have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, and present fairly the financial condition of the Target and
its Subsidiaries as of the indicated dates and the results of operations of
the Target and its Subsidiaries for the indicated periods; provided, however,
that the interim statements are subject to normal year-end adjustments.
(f) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
Recent Fiscal Quarter End, there has not been any material adverse change in
the financial condition of the Target and its Subsidiaries taken as a whole.
(g) Undisclosed Liabilities. None of the Target and its Subsidiaries has
any liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due), including any
liability for taxes, except for (i) liabilities set forth on the face of the
balance sheet dated as of June 30, 1998 (rather than in any notes thereto) and
(ii) liabilities which have arisen after June 30, 1998 in the Ordinary Course
of Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
(h) Brokers' Fees. None of the Target and its Subsidiaries has any
liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
(i) Continuity of Business Enterprise. The Target operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Reg.
ss.1.368-1(d).
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Target that the statements contained in this ss.4 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date
were substituted for the date of this Agreement throughout this ss.4), except
as set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this ss.4.
(a) Organization, Qualification and Corporate Power. Each of the Buyer and
its subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Buyer and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification
is required except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Buyer and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Each of the Buyer and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Buyer
consists of (i) 900,000,000 Buyer Common Shares, of which 11,681,268 Buyer
Common Shares are issued and outstanding, and no Buyer Common Shares are held
in treasury, (ii) 8,000,000 Buyer Preferred Shares, none of which Buyer
Preferred Shares are issued or outstanding, and (iii) 3,670,501 Buyer
Warrants. All of the Buyer Common Shares to be issued in the Merger have been
duly authorized and, upon consummation of the Merger, will be validly issued,
fully paid, and nonassessable. There are no other outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Buyer to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Buyer.
(c) Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided,
6
<PAGE>
however, that the Buyer cannot consummate the Merger unless and until it
receives the Requisite Buyer Stockholder Approval. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in
accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of the charter or bylaws of the Buyer or (ii) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject,
except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would
not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the Illinois General Corporation Law, the
Nevada General Corporation Law, the Securities Exchange Act, the Securities
Act, and the state securities laws, the Buyer does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties
to consummate the transactions contemplated by this Agreement, except where
the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement.
(e) Filings with the SEC. The Buyer has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Public Reports"). Each of the Public Reports
has complied with the Securities Act and the Securities Exchange Act in all
material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The Buyer has
delivered to the Buyer a correct and complete copy of each Public Report
(together with all exhibits and schedules thereto and as amended to date).
(f) Financial Statements. The Target has filed Quarterly Reports on Form
10-Q for the fiscal quarters ended September 30, 1998 (the "Most Recent Fiscal
Quarter End"), June 30, 1998, and March 31, 1998, and an Annual Report on Form
10-K for the fiscal year ended December 31, 1997. The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, and
present fairly the financial condition of the Buyer and its Subsidiaries as of
the indicated dates and the results of operations of the Buyer and its
Subsidiaries for the indicated periods; provided, however, that the interim
statements are subject to normal year-end adjustments.
(g) Events Subsequent to Most Recent Fiscal Quarter End. Since the Most
Recent Fiscal Quarter End, there has not been any material adverse change in
the financial condition of the Buyer and its Subsidiaries taken as a whole.
(h) Undisclosed Liabilities. None of the Buyer and its Subsidiaries has any
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any liability for
taxes, except for (i) liabilities set forth on the face of the balance sheet
dated as of the Most Recent Fiscal Quarter End (rather than in any notes
thereto) and (ii) liabilities which have arisen after the Most Recent Fiscal
Quarter End in the Ordinary Course of Business (none of which results from,
arises out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(i) Employment Agreements. There are no employment agreements or
arrangements of any kind between Buyer and any of its executive officers or
key employees which cannot be terminated upon not more than two weeks notice.
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(j) Brokers' Fees. The Buyer does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any of the Target
and its Subsidiaries could become liable or obligated.
(k) Continuity of Business Enterprise. It is the present intention of the
Buyer to continue at least one significant historic business line of the
Target, or to use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of Reg.
ss.1.368-1(d).
(l) Disclosure. The Registration Statement and the Definitive Buyer Proxy
Materials will comply with the Securities Act and the Securities Exchange Act
in all material respects. The Registration Statement and the Definitive Buyer
Proxy Materials will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made, not
misleading; provided, however, that the Buyer makes no representation or
warranty with respect to any information that the Target will supply
specifically for use in the Registration Statement and the Definitive Buyer
Proxy Materials. None of the information that the Buyer will supply
specifically for use in the Definitive Target Proxy Materials will contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement.
(a) General. Each of the Parties shall use its best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth
in ss.6 below).
(b) Notices and Consents. The Target shall give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and shall use
its best efforts to obtain (and shall cause each of its Subsidiaries to use
its reasonable best efforts to obtain) any third party consents, that the
Buyer reasonably may request in connection with the matters referred to in
ss.3(d) above.
(c) Regulatory Matters and Approvals. Each of the Parties shall (and
theTarget shall cause each of its Subsidiaries to) give any notices to, make
any filings with, and use its best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in ss.3(d) and ss.4(d) above. Without limiting
the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities Laws.
The Buyer shall prepare and file with the SEC preliminary proxy materials
under the Securities Exchange Act relating to the Special Buyer Meeting.
The Buyer shall use its best efforts to respond to the comments of the SEC
thereon and shall make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Target shall provide the Buyer, with whatever information
and assistance in connection with the foregoing filings that the Buyer
reasonably may request. The Buyer shall take all actions that may be
necessary, proper, or advisable under state securities laws in connection
with the offering and issuance of the Buyer Shares.
(ii) Special Buyer Meeting. The Buyer shall call a special meeting ofits
stockholders (the "Special Buyer Meeting") as soon as practicable in order
that the stockholders may consider and vote upon the adoption of this
Agreement and the approval of the Merger in accordance with the Nevada
General Corporation Law. The Buyer shall mail the Definitive Buyer Proxy
Materials to its stockholders simultaneously and as soon as practicable.
The Definitive Buyer Proxy Materials shall contain the affirmative
recommendation of the board of directors of Buyer in favor of the adoption
of this Agreement and the approval of the Merger; provided, however, that
no director or officer of Buyer shall be required to violate any fiduciary
duty or other requirement imposed by law in connection therewith.
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(d) [Intentionally Omitted]
(e) Operation of Target Business. The Target shall not (and shall not cause
or permit any of its Subsidiaries to) engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Target and its Subsidiaries shall authorize or effect
any change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries shall grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Target and its Subsidiaries shall declare, set aside,
or pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or otherwise acquire
any of its capital stock;
(iv) none of the Target and its Subsidiaries shall issue any note, bond,
or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Target and its Subsidiaries shall impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
(vi) none of the Target and its Subsidiaries shall make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries shall make any change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries shall commit to any of
the foregoing.
(f) Operation of Buyer Business. The Buyer shall not (and shall not cause
or permit any of its Subsidiaries to) engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(i) none of the Buyer and its Subsidiaries shall authorize or effect any
change in its charter or bylaws;
(ii) none of the Buyer and its Subsidiaries shall grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Buyer and its Subsidiaries shall declare, set aside,
or pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase, or otherwise acquire
any of its capital stock;
(iv) none of the Buyer and its Subsidiaries shall issue any note, bond,
or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Buyer and its Subsidiaries shall impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
(vi) none of the Buyer and its Subsidiaries shall make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Buyer and its Subsidiaries shall make any change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(viii) none of the Buyer and its Subsidiaries shall commit to any of the
foregoing.
(g) Full Buyer Access. The Target shall (and shall cause each of its
Subsidiaries to) permit representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Target and its Subsidiaries. The
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Buyer will treat and hold as such any Confidential Information it receives
from any of the Target and its Subsidiaries in the course of the reviews
contemplated by this ss.5(g), shall not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement
is terminated for any reason whatsoever, agrees to return to the Target all
tangible embodiments (and all copies) thereof which are in its possession.
(h) Full Target Access. The Buyer shall (and shall cause each of its
Subsidiaries to) permit representatives of the Target to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Buyer and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Buyer and its Subsidiaries. The
Buyer will treat and hold as such any Confidential Information it receives
from any of the Buyer and its Subsidiaries in the course of the reviews
contemplated by this ss.5(h), shall not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement
is terminated for any reason whatsoever, agrees to return to the Buyer all
tangible embodiments (and all copies) thereof which are in its possession.
(i) Notice of Developments. Each Party shall give prompt written notice to
the other of any material adverse development causing a breach of any of its
own representations and warranties in ss.3 and ss.4 above. No disclosure by
any Party pursuant to this ss.5(i), however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(j) Target Exclusivity. The Target shall not (and shall not cause or permit
any of its Subsidiaries to) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Target and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that the Target, its Subsidiaries, and
their directors and officers will remain free to participate in any
discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing to the extent their
fiduciary duties may require. The Target shall notify the Buyer immediately if
any Person makes any proposal, offer, inquiry, or contact with respect to any
of the foregoing.
(k) Buyer Exclusivity. The Buyer shall not (and shall not cause or permit
any of its Subsidiaries to) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Buyer and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange); provided, however, that the Buyer, its Subsidiaries, and
their directors and officers will remain free to participate in any
discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing to the extent their
fiduciary duties may require. The Buyer shall notify the Target immediately if
any Person makes any proposal, offer, inquiry, or contact with respect to any
of the foregoing.
(l) Insurance and Indemnification.
(i) From the after the Effective Time, AGV and the Surviving Corporation
(collectively, the "Indemnifying Party") shall indemnify, defend and hold
harmless, to the full extent a corporation is permitted under the Nevada
Law to indemnify its own directors, officers and agents, each person who is
now, or has been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time an officer or director of Nucleus, and
for purposes of clause (ii) below any agent of Nucleus acting at the
request of its officers or directors in connection with the negotiation,
execution and delivery of this Agreement and the consummation of the Merger
(the "Indemnified Parties") against (i) all losses, claims, damages, costs,
reasonable expenses, liabilities or judgments or amounts ("Indemnified
Liabilities") that are paid in settlement with the approval of the
Indemnifying Party (which approval shall not be unreasonably withheld) of
or in connection with any claim, action, suit, proceeding or investigation
based
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in whole or in part on or arising in whole or in part out of the fact that
such person is or was a director or officer of Nucleus, whether pertaining
to any matter existing now or occurring at or prior to the Effective Time
and whether asserted or claimed prior to or at or after the Effective Time,
and (ii) all Indemnified Liabilities based in whole or in part on or
arising in whole or in part out of or pertaining to this Agreement or the
Merger, including without limitation any act or omission of the officers
and directors of Nucleus in the negotiation execution and delivery of this
Agreement and the consummation of the Merger. AGV and Nucleus, as the case
may be, will pay expenses incurred by an Indemnified Party in advance of
the final disposition of any such action or proceeding upon receipt of an
undertaking by or on behalf of such Indemnified Party to repay such amount
if it shall ultimately be determined that he is not entitled to be
indemnified. In the event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Party, the Indemnifying
Party shall proceed at its own expense to resist and dispose of such claim
in such manner as it deems appropriate; provided, however, that the
Indemnified Party shall have the right to employ separate legal counsel in
any such claim and participate in the defense thereof, but the fees and
expenses of such other counsel shall be at the expense of the Indemnified
Party and shall not be an Indemnified Liability hereunder unless the
Indemnified Party shall conclude based on advice of counsel that the
interests of the Indemnified Party in such action are materially different
from those of the Indemnifying Party or that the Indemnified Party may have
defenses that are different from or in addition to those available to the
Indemnifying Party in which case the fees and expenses of such counsel
shall be an Indemnified Liability. Neither the Indemnifying Party nor the
Indemnified Party shall, except with the prior written consent of each
other Indemnified or Indemnifying Party affected, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term and release by the claimant or plaintiff of all such
parties from all further liability in respect of such claim. Any
Indemnified Party wishing to claim indemnification under this paragraph
5(1), upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Indemnifying Party (but the failure so to
notify the Indemnifying Party shall not relieve such party from any
liability which it may have under this paragraph 5(1) except to the extent
such failure prejudices such party), and shall deliver to the Indemnifying
Party the undertaking to repay expenses referred to above.
(b) For the entire period from the Effective Time until at least three
years after the Effective Time AGV will cause the Surviving Corporation to
maintain without any reduction in scope or coverage the indemnification
provisions for present and former officers and directors contained in
Nucleus' Certificate of Incorporation and By-laws in effect on the date
hereof.
(c) The provisions of this paragraph 5(1) shall survive the Effective
Time and are intended to be for the benefit of and shall be enforceable by
each Indemnified Party and his or her heirs and representatives.
(m) Compliance with the Securities Act. Nucleus shall use its commercially
reasonable efforts to cause each person who is an affiliate, as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act, of
Nucleus to deliver to AGV on or prior to the Effective Time a written
agreement to the effect that such person will not offer to sell, sell or
otherwise dispose of any shares of AGV Common Stock issued in the Merger,
except in each case pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in as transaction
which in the opinion of legal counsel satisfactory to AGV is exempt from the
registration requirements of the Securities Act, and in a manner necessary to
assure the accounting treatment of the Merger as a "pooling of interests."
Nucleus shall use its commercially reasonable efforts to provide AGV with such
information as AGV shall reasonably request for purposes of making its own
determination of persons who may be deemed to be affiliates of Nucleus.
(n) Report on Form 8-K. AGV will use its commercially reasonable efforts to
file a Current Report on Form 8-K containing financial results of the combined
operations of AGV and Nucleus covering a period of at least 30 days following
the Effective Date with the SEC within 45 days after the last day of the first
full month following the Effective Date; provided, however, that AGV may delay
the filing of the Form 8-K for a reasonable period of time if it determines,
in good faith, that the filing would require disclosure of information not
otherwise then required to be disclosed and that such disclosure would
adversely affect any material business situation, transaction or negotiation
then proposed, contemplated or being engaged in by AGV.
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(o) Continuity of Business Enterprise. The Buyer will continue at least one
significant historic business line of the Target, or use at least a
significant portion of the Target's historic business assets in a business, in
each case within the meaning of Reg. ss.1.368-1(d).
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3 above shall be
true and correct in all material respects at and as of the Closing Date;
(ii) the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Target shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in ss.6(a)(i)-(iii) is
satisfied in all respects;
(v) this Agreement and the Merger shall have received the Requisite
Buyer Stockholder Approval;
(vi) AGV shall have received the agreement(s) referred to in paragraph
5(m);
(vii) the Buyer shall have received from counsel to the Target an
opinion in form and substance reasonably satisfactory to Buyer, addressed
to the Buyer, and dated as of the Closing Date;
(viii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Buyer.
The Buyer may waive any condition specified in this ss.6(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Buyer Stockholder Approval;
(ii) the representations and warranties set forth in ss.4 above shall be
true and correct in all material respects at and as of the Closing Date;
(iii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former
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Subsidiaries of the Target, or (D) affect adversely the right of any of the
former Subsidiaries of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(v) the Buyer shall have delivered to the Target a certificate to the
effect that each of the conditions specified above in ss.6(b)(i)-(iv) is
satisfied in all respects;
(vi) the Target shall have received from counsel to the Buyer an opinion
in form and substance reasonably satisfactory to Target, addressed to the
Target, and dated as of the Closing Date;
(vii) Nucleus shall have received the resignation, effective as of the
Closing, of Christopher Walker as director of AGV; and
(viii) the By-Laws of AGV shall have been amended to provide for up to
ten directors; and
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Target.
The Target may waive any condition specified in this ss.6(b) if it executes
a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written notice to
the Target at any time prior to the Effective Time (A) in the event the
Target has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has notified
the Target of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall
not have occurred on or before December 31, 1998, by reason of the failure
of any condition precedent under ss.6(a) hereof (unless the failure results
primarily from the Buyer breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Effective Time (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Target has
notified the Buyer of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before December 31, 1998, by reason of the
failure of any condition precedent under ss.6(b) hereof (unless the failure
results primarily from the Target breaching any representation, warranty,
or covenant contained in this Agreement);
(iv) the Target may terminate this Agreement by giving written notice to
the Buyer at any time prior to the Effective Time in the event the Target's
board of directors concludes that termination would be in the best
interests of the Target and its stockholders; or
(v) any Party may terminate this Agreement by giving written notice to
the other Party at any time after the Special Buyer Meeting in the event
this Agreement and the Merger fail to receive the Requisite Buyer
Stockholder Approval.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to ss.7(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other
Party (except for any liability of any Party then in breach); provided,
however, that the confidentiality provisions contained in ss.5(g) and 5(h)
above shall survive any such termination.
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of the
Parties (other than the provisions in ss.2 above concerning issuance of the
Buyer Shares, the provisions in ss.5(l) above concerning insurance and
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indemnification, and the provisions in ss.5(o) above concerning certain
requirements for a tax-free reorganization]) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions
in ss.2 above concerning issuance of the Buyer Shares and the provisions in
ss.5(o) above concerning certain requirements for a tax-free reorganization
are intended for the benefit of the Target Stockholders and (ii) the
provisions in ss.5(l) above concerning insurance and indemnification are
intended for the benefit of the individuals specified therein and their
respective legal representatives.
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Target: Nucleus Holding Corporation
150 North Michigan Avenue
Suite 3610
Chicago, Illinois 60601
Copy to: Frederick H. Kopko, Jr.
McBreen, McBreen & Kopko
20 North Wacker Drive
Suite 2520
Chicago, Illinois 60606
If to the Buyer: American General Ventures, Inc.
3650 Austin Bluffs Parkway
Suite 138
Colorado Springs, Colorado 80918
Copy to:
Jodi Walker
7841 South Garfield
Littleton, Colorado 80122
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Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Illinois without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Illinois.
(j) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval shall be subject to
the restrictions contained in the Illinois General Corporation Law and in the
Nevada General Corporation Law. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
both of the Parties. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties shall bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
American General Ventures, Inc.
By: /s/ Steven H. Walker
Title: President
Nucleus Holding Corporation
By: /s/ John Paulsen
Title: President
15
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER BETWEEN AMERICAN
GENERAL VENTURES, INC. AND NUCLEUS HOLDING CORP.
This Amendment to Agreement and Plan of Merger between American General
Ventures, Inc., a Nevada corporation (the "Buyer") and Nucleus Holding
Corporation, an Illinois corporation (the "Target") is entered into as of
December 23, 1998.
WHEREAS, an Agreement and Plan of Merger (the "Agreement of Merger")
between Buyer and Target was entered into as of October 28, 1998; and
WHEREAS, paragraphs (ii) and (iii) of Section 7(a) of the Agreement of
Merger provides for termination of the Agreement of Merger, under certain
circumstances, if the Closing (as defined therein) has not occurred on or
before December 31, 1998; and
WHEREAS, on or about December 7, 1998, the Securities and Exchange
Commission (the "SEC") notified the Buyer that the preliminary proxy materials
filed by the Buyer relating to the Special Buyer Meeting (as defined in the
Agreement of Merger) would be subject to full review by the SEC: and
WHEREAS, the parties hereto believe that due to the nature of the review,
the Special Buyer Meeting will not be able to be held until February 1999; and
WHEREAS, the parties wish to provide for extension of the Agreement of
Merger, pending SEC review;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
therein contained, the parties hereto agree as follows:
1. The references to "December 31, 1998" in paragraphs (ii) and (iii) of
Section 7(a) of the Agreement of Merger shall be deleted and replaced by
references to "February 28, 1999."
2. Except as modified hereby, all other terms and conditions of the
Agreement of Merger shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to Agreement
and Plan of Merger as of the date first above written.
American General Ventures, Inc. Nucleus Holding Corporation
By: /s/ Steven Walker By: /s/ John Paulsen
- ------------------------------------ --------------------------------------
Title: President Title: President
16
<PAGE>
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER BETWEEN
AMERICAN GENERAL VENTURES, INC. AND NUCLEUS HOLDING CORP.
This Second Amendment to Agreement and Plan of Merger between American
General Ventures, Inc., a Nevada corporation (the "Buyer") and Nucleus Holding
Corporation, an Illinois corporation (the "Target") is entered into as of
January 20, 1999.
WHEREAS, an Agreement and Plan of Merger (the "Agreement of Merger")
between Buyer and Target was entered into as of October 28, 1998; and
WHEREAS, the Agreement and Plan of Merger was amended on December 23, 1998;
and
WHEREAS, a one-for-ten reverse stock split of AGV's shares become effective
in December 1998; and
WHEREAS, it has been determined that the number of outstanding shares of
AGV Common Stock was incorrectly determined by the parties; and
WHEREAS, as a result of the one-for-ten reverse stock split, and the re-
determination of the number of outstanding shares of AGV Common Stock, the
parties have agreed to adjust the Conversion Ratio (as defined in the
Agreement of Merger).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
therein contained, the parties hereto agree as follows:
1. The Conversion Ratio shall be changed from 54,428.994 to 5,307.109.
2. Except as modified hereby, all other terms and conditions of the
Agreement of Merger, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Agreement and Plan of Merger as of the date first above written.
American General Ventures, Inc. Nucleus Holding Corporation
By: /s/ Steven Walker By: /s/ John Paulsen
- ------------------------------------- --------------------------------------
Title: President Title: President
17
<PAGE>
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER BETWEEN
NUCLEUS, INC. (formerly known as American General Ventures, Inc.)
AND NUCLEUS HOLDING CORP.
This Third Amendment to the Agreement and Plan of Merger between Nucleus,
Inc. (formerly known as American General Ventures, Inc.), a Nevada Corporation
(the "Buyer"), and Nucleus Holding Corporation, an Illinois corporation (the
"Target") is entered into as of February 26, 1999.
WHEREAS, an Agreement and Plan of Merger (the "Agreement of Merger")
between Buyer and Target was entered into as of October 30, 1998; and
WHEREAS, the Agreement and Plan of Merger was amended on December 23, 1998
and again on January 20, 1999; and
WHEREAS, paragraphs (ii) and (iii) of Section 7(a) of the Agreement of
Merger provide for termination of the Agreement of Merger, under certain
circumstances, if the closing (as defined therein) has not occurred by
December 31, 1998; and
WHEREAS, Section 2(b) of the Agreement of Merger provides for termination
of the Agreement of Merger, under certain circumstances, if the closing (as
defined therein) has not occurred by February 28, 1999 (as amended on January
20, 1999); and
WHEREAS, the parties hereto believe that due to the nature of the SEC
review (described in the Amendment to the Agreement of Merger dated December
23, 1998), it may not be possible to hold the Special Buyer Meeting until
April 30, 1999; and
WHEREAS, paragraph (iv) (c) of Section 2(d) of the Agreement of Merger
provides for certain persons to be acceptable to serve as directors of AGV;
and
WHEREAS, paragraph (iv) (d) of Section 2(d) of the Agreement of Merger
provides that AGV and Nucleus shall use their reasonable best efforts to cause
John C. Paulsen to be appointed President and Chief Executive Officer and
Steven H. Walker to remain a Chairman of the Board of Directors and to be
appointed as Vice President of Business Development of AGV; and
WHEREAS, paragraph (v) of Section 2(d) of the Agreement of Merger provides
that each Target share shall be converted into the right to receive 54,428,999
Buyer Shares (the ratio of 54,428.999 Buyer Shares to one Target Share); and
WHEREAS, Section 3(e) of the Agreement of Merger provides that the
Financial Statements of the Target for the fiscal quarter ended June 30, 1998,
and for the fiscal year ended December 31, 1997 have been prepared in
accordance with GAAP; and
WHEREAS, Section 3(f) of the Agreement of Merger provides that there has
not been any material adverse change in the financial condition of the Target
and its Subsidiaries since the Most Recent Fiscal Quarter End; and
WHEREAS, Section 3(g) of the Agreement of Merger provides that the Target
and its Subsidiaries does not have any liability (whether known or otherwise),
except for the liabilities set forth on the face of the balance sheet dated as
of June 30, 1998, nor has the target or its Subsidiaries become aware of any
liabilities which have arisen after June 30, 1998 which would cause a breach
of contract, breach of warranty, tort, infringement, or violation of law as
defined therein; and
WHEREAS, Section 4(b) of the Agreement of Merger provides that 11,681,268
Buyer Common Shares and 3,670,401 Buyer Warrants are issued and outstanding;
and
18
<PAGE>
WHEREAS, Section 4(f) of the Agreement of Merger provides that the Target
has filed Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1998 (the "Most Recent Fiscal Quarter End"), June 30, 1998, and
March 31, 1998, and an Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and
WHEREAS, Section 4(g) of the Agreement of Merger provides that there have
been no material adverse changes in the financial condition of the Buyer and
its subsidiaries since the Most Recent Fiscal Quarter Ended; and
WHEREAS, Section 4(h) provides that the Buyer and its Subsidiaries do not
have any liability (whether known or otherwise), except for the liabilities
set forth on the face of the balance sheet dated as of the Most Recent Fiscal
Quarter End, nor has the Buyer or its Subsidiaries become aware of any
liabilities which have arisen after the Most Recent Fiscal Quarter End which
would cause a breach of contract, breach of warranty, tort, infringement, or
violation of law as defined therein; and
WHEREAS, paragraph (vii) of Section 6(b) provides that Nucleus shall have
received the resignation, effective as of the Closing, of Christopher Walker
as director of AGV; and
WHEREAS, the parties wish to amend certain aspects of the Agreement of
Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
therein contained, the parties hereto agree as follows:
1. The references to "February 28, 1999" in Section 2(b) and in
paragraphs (ii) and (iii) of Section 7(a) of the Agreement of Merger (as
amended on January 20, 1999) shall be deleted and replaced by references to
"April 30, 1999."
2. Paragraph (iv) (c) of Section 2(d) of the Agreement of Merger shall
be amended to include J. Theodore Hartley as acceptable to serve as a
director of AGV.
3. Paragraph (iv) (d) of Section 2(d) of the Agreement of Merger shall
be amended to provide that AGV and Nucleus shall use their reasonable best
efforts to cause John C. Paulsen to be appointed as Chairman of the Board
of Directors, as well as President and Chief Executive Officer of AGV and
Steven H. Walker will resign as Chairman of the Board of Directors.
Additionally, reference in such paragraph to "Vice President of Business
Development" shall be deleted and replaced by "Vice President--Strategic
Alliances."
4. The reference in paragraph (v) of Section 2(d) of the Agreement of
Merger to "54,428,999" shall be deleted and replaced by "5,307,109" and the
reference to "54,428.999" shall be deleted and replaced by "5,307.109."
5. The references in Section 3(e) of the Agreement of Merger to "the
fiscal quarter ended June 30, 1998" shall be deleted and reference to
"fiscal year ended December 31, 1997" shall be deleted and replaced by "the
fiscal year ended December 31, 1998."
6. The references in Section 3(f) of the Agreement of Merger to "Most
Recent Fiscal Quarter End" shall be deleted and replaced by "Most Recent
Fiscal Year End."
7. The references to "June 30, 1998" in Section 3(g) of the Agreement of
Merger shall be deleted and replaced by "December 31, 1998."
8. The references in Section 4(b) of the Agreement of Merger to
"11,681,268" shall be deleted and replaced by "1,129,827" and the reference
to "3,670,501" shall be deleted and replaced by "367,050" to reflect the
Buyer's one-for-ten reverse stock split which became effective December 8,
1998.
9. The reference in Section 4(f) of the Agreement of Merger to "Target"
shall be deleted and replaced by "Buyer," the reference to "Most Recent
Fiscal Quarter End" shall be deleted in its entirety and the reference to
"December 31, 1997" in such Section shall be deleted and replaced by
"December 31, 1998 (the "Most Recent Fiscal Year End")."
10. The reference to "Most Recent Fiscal Quarter End" in Section 4(g) of
the Agreement of Merger shall be deleted and replaced by "Most Recent
Fiscal Year End."
19
<PAGE>
11. The reference to "Most Recent Fiscal Quarter End" in Section 4(h) of
the Agreement of Merger shall be deleted and replaced by "Most Recent
Fiscal Year End."
12. Paragraph (vii) of Section 6(b) shall be amended to include that
Nucleus shall also receive the resignation, as of the Closing, of Steven
Walker as Chairman of the Board of Directors of AGV.
13. Except as modified hereby, all other terms and conditions of the
Agreement of Merger shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment to the
Agreement of Merger as of the date first above written.
Nucleus, Inc.
(formerly known as
American General Ventures, Inc.) Nucleus Holding Corporation
/s/ Steven Walker /s/ John Paulsen
By: _________________________________ By: _________________________________
Title: President Title: President
20
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS OF
NUCLEUS, INC.
TO BE HELD APRIL 15, 1999
The undersigned hereby appoints Stephen Walker or Chris Walker as the lawful
agent and Proxy of the undersigned (with all the powers the undersigned would
possess if personally present, including full power of substitution), and hereby
authorizes him to represent and vote, as designated below, all the shares of
Common Stock of Nucleus, Inc. held of record by the undersigned on March 8, 1999
at the Annual Meeting of the Shareholders to be held April 15, 1999, or any
adjournment or postponement thereof.
1. ELECTION OF DIRECTORS
[_] FOR the election as a director of [_] WITHHOLD AUTHORITY to vote for all
all nominees listed below (except nominees listed below.
as marked to the contrary below).
NOMINEES: Stephen M. Calk, Mark P. Fera, J. Theodore Hartley, John C. Paulsen,
Jeffrey R. Wescott
INSTRUCTION: To withhold authority to vote for individual nominees, write their
names in the space provided below.
- --------------------------------------------------------------------------------
INSTRUCTION: Each stockholder is entitles to five votes, which he/she may
cumulate to vote for 1, 2, 3, 4, or 5 Directors. Unless otherwise indicated in
the space below, one vote will be cast for each Director voted on by the
stockholder.
- --------------------------------------------------------------------------------
2. To approve the combination of the company and Nucleus Holding Corporation
("Nucleus Holding") through the proposed merger of Nucleus Holding with and into
the company and the issuance of the company's common stock in connection
therewith.
[_] FOR [_] AGAINST [_] WITHHOLD VOTE
(Continued and to be signed on the reverse side)
<PAGE>
3. In his discretion, the Proxy is authorized to vote upon matters which may
properly come before the Special Meeting, or any adjournment or postponement
thereof.
It is understood that when properly executed, this Proxy will be voted in
the manner directed herein by the undersigned shareholder. WHERE NO CHOICE IS
SPECIFIED BY THE SHAREHOLDER THE PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS NAMED IN ITEM 1 ABOVE AND FOR THE PROPOSAL SET FORTH IN ITEM 2.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and confirms all that said Proxy may do by virtue hereof.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:_____________________________
Signature:_________________________
Signature:_________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE, AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING OF
STOCKHOLDERS. [_]
